Effects of Potential Trade Policy

Industrial manufacturing in the United States has long been out of favor, being beat out by foreign nations due to cheaper labor, cheaper materials, and less regulation. Those three factors all lead to the same conclusion; it is too expensive to competitively manufacture in the U.S. for many companies. The new Presidential Administration could level the playing field for domestic production, not through lowering their costs, but by making foreign production equally expensive through tariffs, taxes etc. While this may seem like a catalyst for the industry, the benefits aren't very broad.

Making domestic production more competitive is good for the U.S. economy and for the U.S. jobs market, however it is not beneficial for U.S. based companies who produce overseas and import back to the U.S. For these companies costs are almost certain to rise thus decreasing earnings. The industrials and basic materials sectors as a whole could experience a severe pullback as a result of policy changes, while pure domestic producers could separate themselves from the pack and realize upside potential. These developments make industrials and basic materials perfect for a stock picker, but bad for investors seeking sector ETFs. While analyzing companies in these sectors look for the producers who already maintain domestic production, as they will become more competitive going forward.