In Worsened Trade War, Goods Makers Will Hurt More, Says Goldman Sachs

Service providers like Google will best manufacturers such as Apple, firm figures.

Who will be the winners and losers if the trade war with China grows worse? Goldman Sachs’ answer: Service providers like Microsoft, Amazon, and Google parent Alphabet will do better than goods producers such as Apple, Johnson & Johnson, and Exxon.

“Services stocks have less foreign input costs that might be subject to tariffs,” wrote Goldman’s chief equity strategist, David Kostin, and his team in a note to clients. Plus, they “are also less exposed to potential trade retaliation given they have less non-US sales exposure than goods companies.”

In addition, service businesses tend to have sturdier balance sheets and more stable gross margins, Goldman reasoned.

With President Donald Trump poised to potentially raise tariff rates to 25% from 10% on $200 billion in Chinese imports on Friday, Wall Street has been thrown into a tizzy. The S&P 500 dove 1.5% on Tuesday on the news, and after a see-saw session on Wednesday, ended down 0.16%.

While all this may be gamesmanship, the possibility exists that the Sino-American trade war could get much worse.

And should China retaliate against harsher US levies, Goldman went on, the situation would get more grim still for the goods companies. Then, the Goldman note said, “such an action would likely have a greater negative impact on goods vs. services companies.”

Certainly, services have increased their heft in recent decades. Goldman pointed out that they now represent 56% of S&P 500 market value, up from 30% in 1980. And in recent times, services have done better with inflation: In 2019, the firm estimated that goods inflation would be 0% while that of services would be 3%.

 

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