China trade fight heats up while U.S. makes deal with Canada, Mexico on metals

Catch up on the top industries and stocks that were impacted, or were predicted to be impacted, by the comments, actions and policies of President Donald Trump and his administration with this weekly recap compiled by The Fly:

1. U.S.-CHINA TARIFFS: The Trump administration announced the U.S. will be ratcheting up import tariffs to 25% from 10% on about $200B worth of Chinese goods. As retaliation, China has plans to set new tariffs of between 5% and 25% on $60B of U.S. imports, which will impact around 5,000 products, starting on June 1, according to media reports on Monday. Commenting on the U.S. tariff increase on Chinese imports, KeyBanc analyst Philip Gibbs said he sees this as a modest negative for steel producers as key consumables remain sticky, and a relative neutral for ArcelorMittal (MT) given its global exposure. On steelmaking raw materials, the analyst sees this as a neutral for Cleveland-Cliffs (CLF) and a negative for Schnitzer Steel (SCHN). Clearer winners appear to be Global Brass and Copper (BRSS), Luxfer (LXFR), and Materion (MTRN), whereby it will be tougher for the Chinese to compete within the U.S. in its core businesses, Gibbs said.

2. DEAL ON STEEL: The Trump administration has reached a deal with Canada and Mexico to lift steel and aluminum tariffs, Washington Post reported on Friday. The deal, which avoids quotas on steel from the two countries, which Canada and Mexico had opposed, is a "significant step" toward congressional approval of the United States-Mexico-Canada Agreement, according to the Post.

3. PAUSE TO AUTO TARIFFS: Ahead of a May 18 deadline to decide whether to slap duties on car and auto part imports, President Trump issued a proclamation directing the United States Trade Representative to "negotiate agreements to address the national security threat" presented by imports of automobiles and certain automobile parts, noting that if agreements are not reached within 180 days that Trump will determine whether and what further action needs to be taken. In response, Cecilia Malmstrom, the EU Commissioner in charge of trade, said that while the EU "completely rejects" the notion that its car exports are a national security threat, the EU is prepared to negotiate a limited trade agreement including cars, "but not WTO-illegal managed trade." Publicly traded automakers include Daimler AG (DDAIF), Fiat Chrysler (FCAU), Ford (F), General Motors (GM), Honda (HMC), Nissan (NSANY), Toyota (TM) and Volkswagen (VWAGY).

4. STEVEN MADDEN, G-III APPAREL: On Tuesday, Piper Jaffray analyst Erinn Murphy downgraded Steven Madden (SHOO) and G-III Apparel (GIII) to Neutral from Overweight as they produce a large amount of their goods in China. Murphy sees existing tariffs impacting second half of the year earnings, and believes that even if there is tariff relief in the next month, there might not be a full recovery of the multiples. Overall, while both vendors likely can increase pricing to some extent, the analyst believes their overall exposure to China and recently proposed tariffs to the apparel/footwear categories will weigh on their multiple.

5. EXECUTIVE ORDER ON TELECOM GEAR: On Wednesday, President Trump signed an executive order that would let the U.S. ban telecommunications gear from "foreign adversaries." Along with the executive order, the Commerce Department will add China's Huawei Technologies to a list of entities engaged in activities that are contrary to U.S. interests, which could restrict sales or transfers of American technology to Huawei by requiring a government license.

6. HUAWEI FALLOUT: After the U.S. Commerce Department added Huawei Technologies and 70 affiliates to its "Entity List," which bans the Chinese company from acquiring components and technology from U.S. companies without government approval, Benchmark analyst Mark Miller noted that prior restrictions negatively impacted II-VI (IIVI), which counts Huawei among its customers and with Finisar, its recent acquisition, also a customer of the Chinese company. Additionally, the analyst argued that Lumentum (LITE) may be unfavorably impacted as Huawei represents about 15% of its revenue. Huawei has contributed about 13% of Micron's (MU) sales in the last two quarters and shares of Western Digital (WDC) often trade in a similar manner to Micron, added Miller. Others that he sees potentially being negatively impacted by the Huawei news include IPG Photonics (IPGP), Coherent (COHR), nLight (LASR) and Veeco (VECO). On Friday, NeoPhotonics (NPTN) was downgraded to Neutral from Buy at MKM Partners and to Hold from Strong Buy at Needham, with both firms citing the uncertainty associated with the U.S. government move against China's Huawei, whose business is tied to nearly half of NeoPhotonics' revenue.

7. APPLE: Also commenting on the 25% tariff on $200B of Chinese imported goods and China's retaliation, Wedbush analyst Daniel Ives said that while many U.S. companies are impacted by this latest trade tension, the "poster child for the U.S./China UFC battle" continues to be Apple (AAPL). Based on his analysis, Ives believes the cost of making iPhones will go up by roughly 2%-3%. On Thursday, following the Huawei news, Ives added that he expects a "lot more sand to be thrown in the sand box between the Beltway and Shanghai until the G-20 talks," but cautioned investors in Apple to not jump to conclusions. Many are "yelling fire in a crowded theater" saying this tariff issue will be a major fundamental blow to Apple, but the analyst "strongly" disagrees. Ives ultimately thinks there is a low likelihood that Apple and its iPhones feel "the brunt of the tariff," while the "more concerning issue" is around any hit in demand if Apple suffers from "the noise in China" and any pro Huawei sentiment negatively impacting sales in the near-term.