One of the biggest challenges President Biden and his Administration face is the inheritance of a frayed trade relationship with the second-largest economy in the world: China.
Ending the pandemic is rightfully first on Biden’s pecking order of what he wants to accomplish during his early days in office, but smoothing trade relations with China should remain a top priority due to the longer-term implications it has on not just the two countries, but for the entire world.
Incoming Treasury Secretary Janet Yellen may have already suggested that the Administration will continue some of the hardline policies towards China that were enacted by the Trump Administration, but one key difference between the two regimes will be how they handle negotiations.
Whereas former President Trump preferred to take a unilateral approach to trade policy and often surprised markets and CEOs with his tariff favoring tweets, President Biden will likely look to build a coalition with allies with the goal of reducing trade barriers and opening up economies for business. In other words, instead of a tit-for-tat tariff policy that did not solve the root of the issues, Biden will likely search for opportunities to compromise and consider outcomes that are beneficial for both nations.
This should lead to big orders on U.S. goods coming in from China and less headwinds to global economic growth. So what companies stand to be the biggest beneficiaries of trade tension de-escalation?
On the industrial side, I am looking at the companies that have a significant presence in China and one of the first names that comes to mind is DuPont (DD) – Get Report. According to FactSet, roughly 15% of DuPont’s revenues come from Mainland China, and core sales into the region grew 14% in the third quarter versus the prior year.
Another company that could be a winner is Boeing ((BA)) – Get Report. If the Chinese want to extend an olive branch to the Biden Administration and show that they are serious about buying U.S. goods, one way they can go about this is to buy more jets from Boeing to support their fast-growing aerospace industry. Boeing estimates that over the next 20 years, China’s airlines will purchase 8,600 new airplanes worth $1.4 trillion and commercial aviation services valued at $1.7 trillion.
How about the companies that play into the consumer? As the harsh rhetoric between the United States and China dials down, so does the risk of additional tariffs on U.S. goods, and at its worst, an outright consumer boycott. That means Apple (AAPL) – Get Report is free to sell as many 5G iPhone into the region as they can (Apple has been gaining share from Huawei in China, according to Morgan Stanley); Starbucks (SBUX) – Get Report can continue expanding into the region without a problem (the company’s management plans to open 600 new stores in China during their current fiscal year); and Nike (NKE) – Get Report can continue its reign as the number one sports brand seller on Alibaba’s ((BA)(BA)) – Get Report Single’s Day, which is one of the biggest online shopping events in the world (Singles Day this year drove more than $500 million in digital demand for Nike).
What about in the semiconductor industry? Broadcom (AVGO) – Get Report is a clear winner with almost one-third of their sales coming from the region, according to FactSet, such as the ASIC chips they sell to Alibaba and the networking adapters they sell to Baidu (BIDU) – Get Report for its cloud services.
But do you want the easiest way to tell trade how relations between the United States and China are going? Look for news surrounding Nvidia’s ((NVDA)) – Get Report planned $40 billion acquisition of Arm Limited from Softbank (SFTBY) . If Chinese regulators approve this deal and allow Nvidia to combine with Arm to form the premier computing company in artificial intelligence, then you know the relationship between the two countries has greatly improved.
DuPont, Boeing, Apple, Starbucks, Nike, Broadcom and Nvidia are holdings in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Learn more now.