What sectors and states will be affected by trade wars: a data-driven analysis
HIGHLIGHTS:
We study the trade war impact on US economy by analyzing annual filings from all US domestic listed companies to SEC, and have the following findings:
- One out of four US-based public companies mentioned that their businesses could be affected by trade tensions between the US and its trading partners, like China.
- Though affected companies are widely spread, a large number of them are from pharmaceutical, software, semiconductor and medical device sectors. In certain major sectors, significant portions of companies will see the impact, such as retail-family clothing stores (84.6%), semiconductors (78.6%), auto parts (72.2%), and agriculture chemicals (71.4%).
- Geographically, California, New York, and Texas have the largest number of companies that are affected, making those states the most unfortunate victims of the trade wars. While in terms of percentage, Wisconsin (46.5%), Oregon (39.4%) and Washington (38.0%) have the highest portion of companies that are affected.
OUR FOCUS IS DOMESTIC LISTED COMPANIES
The trade tension between the US and China is heightening. The stock market is already starting to react, as investors are dumping stocks of companies which either rely on imports from China or supply products to Chinese market. In addition to stock market investors, local residents in some states are also anxious following the progress of the trade tension, because their local economies are closely linked with the trading relationship between these two countries.
Domestic listed companies represent the economy well, and their abundant public information forms a sound base for data-driven analysis of factors such as trade war impact. By using artificial intelligence techniques, FMeasure Inc. has extracted and reviewed latest trade war related information for all US domestic listed companies filing annual reports to US Securities and Exchange Commission (SEC), and had the following findings:
ONE OUT OF FOUR COMPANIES OPENLY ADMIT THAT TRADE TENSION IS A MAJOR RISK FACTOR FOR THEIR BUSINESS
24% companies openly admit that they will be affected by trade tensions. The top 10 of them sorted by their market caps are in Table 1.
Table 1: Top 10 affected companies (sorted by market cap)
Company | State | Sector |
---|---|---|
MICROSOFT CORP | WASHINGTON | SERVICES-PREPACKAGED SOFTWARE |
AMAZON COM INC | WASHINGTON | RETAIL-CATALOG & MAIL-ORDER HOUSES |
APPLE INC | CALIFORNIA | ELECTRONIC COMPUTERS |
Alphabet Inc. | CALIFORNIA | SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. |
VISA INC. | CALIFORNIA | SERVICES-BUSINESS SERVICES, NEC |
Walmart Inc. | ARKANSAS | RETAIL-VARIETY STORES |
BANK OF AMERICA | NORTH CAROLINA | NATIONAL COMMERCIAL BANKS |
PROCTER & GAMBLE CO | OHIO | SOAP, DETERGENTS, CLEANG PREPARATIONS, PERFUMES, COSMETICS |
PFIZER INC | NEW YORK | PHARMACEUTICAL PREPARATIONS |
CISCO SYSTEMS, INC. | CALIFORNIA | COMPUTER COMMUNICATIONS EQUIPMENT |
Some of these companies are well-known to be sensitive to trade tensions, such as Apple and Walmart. Others may not be so obvious. They feel the pain from trade wars through an indirect channel. We list below some quotes from Microsoft, Visa and Bank of America as examples to illustrate this.
Microsoft: “Changes to trade policy or agreements as a result of populism, protectionism, or economic nationalism may result in higher tariffs, local sourcing initiatives, or other developments that make it more difficult to sell our products in foreign countries.”
VISA: “The current trade environment reduces the likelihood of having our Bank Card Clearing Institution application in China approved.”
Bank of America: “Changes, or proposed changes to certain U.S. trade policies, particularly with important trading partners, including China, could upset financial markets, disrupt world trade and commerce and lead to trade retaliation through the use of tariffs, foreign exchange measures or the large-scale sale of U.S. Treasury Bonds.”
MOST SECTORS WILL BE AFFECTED, ESPECIALLY THOSE THAT US COMPANIES HAVE TECHNOLOGY ADVANTAGES, SUCH AS PHARMACEUTICAL AND SEMICONDUCTOR.
The trade war is going to impact widely on many sectors (classified using Standard Industrial Classification Codes) of the US economy.
- Around 80% sectors have companies that are going to be affected;
- more than 60% sectors will be significantly affected (if at least 25% of the companies within the sector are affected);
- about 40% sectors will feel the pain across the sector (if at least half of the companies within the sector are affected); and
- for 41 sectors, all companies under them will be affected.
We have extracted text explanations on how trade wars affect their businesses for all those affected companies. It could be as direct as higher Chinese tariff leads to lower sales, or as complicated as the potential trade war escalation could trigger higher regulatory barrier of market entry into China.
In Table 2, we list top 10 sectors sorted by total number of companies within them that are to be affected. In Table 3, we list top 25 major sectors (with >=10 companies filing filing annual reports to SEC in the last 18 months) sorted by percentage of companies that are to be affected. Note that sizes of some sectors are significantly larger than the others.
Table 2: Top 10 affected sectors (sorted by #affected companies)
Percentage affected | Industry | #companies affected |
---|---|---|
20.4% | PHARMACEUTICAL PREPARATIONS | 91 |
38.0% | SERVICES-PREPACKAGED SOFTWARE | 76 |
78.6% | SEMICONDUCTORS RELATED | 66 |
43.33% | SURGICAL & MEDICAL INSTRUMENTS &APPARATUS | 52 |
9.0% | REAL ESTATE INVESTMENT TRUSTS | 32 |
13.5% | STATE COMMERCIAL BANKS | 31 |
72.2% | MOTOR VEHICLE PARTS & ACCESSORIES | 26 |
21.0% | SERVICES-BUSINESS SERVICES,NEC | 26 |
56.8% | INDUSTRIAL ORGANIC CHEMICALS | 25 |
24.3% | BIOLOGICAL PRODUCTS, (NO DISGNOSTIC SUBSTANCES) | 25 |
Table 3: Top 25 major sectors (sorted by percentage of companies to be affected)
Percentage affected | Sector | #companies affected |
---|---|---|
84.6% | RETAIL-FAMILY CLOTHING STORES | 11 |
78.6% | SEMICONDUCTORS & RELATED DEVICES | 66 |
76.9% | RETAIL-APPAREL & ACCESSORY STORES | 10 |
73.3% | COMPUTER PERIPHERAL EQUIPMENT, NEC | 11 |
72.2% | MOTOR VEHICLE PARTS & ACCESSORIES | 26 |
71.4% | AGRICULTURAL CHEMICALS | 10 |
70.6% | CHEMICALS & ALLIED PRODUCTS | 12 |
70.6% | TELEPHONE & TELEGRAPH APPARATUS | 12 |
69.2% | APPAREL & OTHER FINISHD PRODS OF FABRICS & SIMILAR MATL | 9 |
69.2% | MOTOR VEHICLES & PASSENGER CAR BODIES | 9 |
69.2% | RETAIL-VARIETY STORES | 9 |
66.7% | INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS | 8 |
64.3% | PLASTIC MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS | 9 |
62.5% | OIL & GAS FIELD MACHINERY & EQUIPMENT | 10 |
60.0% | LABORATORY ANALYTICAL INSTRUMENTS | 15 |
60.0% | WATER TRANSPORTATION | 6 |
58.3% | SERVICES-MEDICAL LABORATORIES | 14 |
57.9% | INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL | 11 |
57.1% | ELECTRONIC COMPONENTS & ACCESSORIES | 8 |
57.1% | ELECTRONIC COMPONENTS, NEC | 8 |
56.8% | INDUSTRIAL ORGANIC CHEMICALS | 25 |
54.5% | CUTLERY, HANDTOOLS & GENERAL HARDWARE | 6 |
53.8% | HOUSEHOLD FURNITURE | 7 |
50.0% | MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES | 11 |
50.0% | PRINTED CIRCUIT BOARDS | 6 |
CERTAIN STATES MIGHT BE HIT HARD IN THE TRADE WAR
By looking at the companies’ locations, almost all states except Alaska and New Mexico will be affected based on our analysis. In Table 4, we list top 10 affected states sorted by the percentage of the companies to be affected. In Table 5, we list the top 10 affected states sorted by the total number of companies to be affected. Interestingly, among those most affected states, Ohio, Florida, and Wisconsin could be key battle states for the 2020 presidential election.
Table 4: Top 10 affected states (sorted by percentage of companies to be affected)
Percentage affected | State | #companies affected | #companies |
---|---|---|---|
46.5% | WISCONSIN | 33 | 71 |
39.4 | OREGON | 13 | 33 |
38.0% | WASHINGTON | 41 | 108 |
37.2% | ILLINOIS | 92 | 247 |
36.0% | MINNESOTA | 40 | 111 |
34.4% | GEORGIA | 44 | 128 |
33.3% | OHIO | 59 | 177 |
33.3% | RHODE ISLAND | 5 | 15 |
33.3% | SOUTH DAKOTA | 4 | 12 |
33.3% | MONTANA | 2 | 6 |
Table 5: Top 10 affected states (sorted by number of companies to be affected)
Percentage affected | State | #companies affected | #companies |
---|---|---|---|
30.8% | CALIFORNIA | 337 | 1094 |
19.5% | NEW YORK | 164 | 843 |
21.4% | TEXAS | 151 | 706 |
24.8% | MASSACHUSETTS | 98 | 395 |
37.2% | ILLINOIS | 92 | 247 |
16.9% | FLORIDA | 61 | 362 |
26.0% | PENNSYLVANIA | 60 | 231 |
33.3% | OHIO | 59 | 177 |
19.4% | NEW JERSEY | 49 | 253 |
34.4% | GEORGIA | 44 | 128 |
FINAL WORDS
The bottom-up research results shown above indicate that the trade tension between US and China will have vast impact on many sectors and regional economies, some of which are not that obvious. We hope the analysis will be useful to investors and policymakers.
Questions, comments and requests can be sent to FMeasure Research Team (team@fmeasure.com).
FURTHER READING
In “trade war impact on US industries” blog, we list all 247 sectors that are going to be significantly affected by trade wars.
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