President-elect Donald Trump has proposed implementing significant tariffs, including 25% on imports from Mexico and Canada, and an additional 10% on goods from China.
For investors, this could mean a return to the trade-war trenches of 2019, but this time, the stakes are higher and the economic backdrop shakier.
JPMorgan analyst Christopher Horvers is sounding the alarm, pointing out that the tariff squeeze might be harder to absorb now than during the first tariff spat. With inflation already a sore spot for consumers, the retail and manufacturing sectors could find themselves in a pricing power pickle.
Here's where the pressure is highest and how it could influence stock movements.
Electronics, Toys, Furnishings: Tariff Trouble Zones
The “Made in China” label isn’t just a tagline; it's a linchpin for sectors like electronics, toys, and home furnishings. According to Horvers, consumer electronics, with names like Best Buy Co Inc (NASDAQ:BBY) sourcing as much as 60% from China, are sitting ducks. Similarly, the toy giants Hasbro Inc (NASDAQ:HAS) and Mattel Inc (NASDAQ:MAT) have 50% of U.S. revenues tied to China-made goods.
Retailers like Walmart Inc (NYSE:WMT) and Target Corp (NYSE:TGT), who dominate 40% of the U.S. toy market, could pass price hikes to consumers, but only up to a certain limit.
Meanwhile, home furnishings players like RH (NYSE:RH) and Williams-Sonoma Inc (NYSE:WSM), already battling tighter margins, could see additional pain.
In fragmented industries like these, pricing power is weak, and any added costs could disrupt consumer demand or erode profits.
Autoparts: High Import, But Stronger Shields
Auto parts, with high import exposure (e.g., 45% for AutoZone Inc (NYSE: AZO)), might appear vulnerable. However, Horvers suggests this sector wields strong pricing power, which should buffer against margin compression.
Unlike toys or electronics, auto parts are essential purchases—there's no skipping that brake replacement or battery swap.
Grocery Stores: Low Risk, High Resilience
The grocery sector seems to have drawn the long straw. With low import exposure and robust pricing power, players like BJ's Wholesale Club Holdings Inc (NYSE:BJ) and Costco Wholesale Corp (NASDAQ:COST) are largely insulated. Their domestic sourcing and needs-based demand make this category a tariff-resistant fortress, according to the analyst.
2024 Vs. 2019: Less Pricing Power, More Shared Pain
The tariffs of 2019 were painful but manageable. This time around, Horvers warns, things could be different. Consumers have already endured price hikes on essentials since 2020, leaving retailers and manufacturers with less room to maneuver. Big-ticket discretionary items, such as appliances or furniture, might see a sharper dip in unit sales as buyers balk at higher price tags.
Adding to the complexity, tariffs this time appear more politically charged. Horvers believes imposing significant consumer-facing price shocks could backfire, especially with inflation shaping voter sentiment. This was evident in 2019 when tariffs on consumer goods were retracted to avoid such fallout.
What Investors Should Watch
If tariffs take hold, shared pain across manufacturers, retailers, and consumers will be the name of the game.
Investors should monitor pricing strategies, margin resilience, and unit sales in the affected sectors. Stocks with diversified sourcing, strong pricing power, or essential demand are better positioned to weather the storm.
Trump's tariff 2.0 might be a high-stakes negotiation tactic, but for stocks exposed to discretionary imports, it's a risk that can't be ignored.
As trade tensions escalate, investors are questioning not only who bears the cost of tariffs but also how long consumers can endure higher prices before they stop spending altogether.
Read Next:
Photo by Khanthachai C on Shutterstock
