Tilo Wannow ODDO BHF Asset Management.

Donald Trump's aggressive tariff policy is keeping the world on edge. The US has become less reliable as a trading partner and less attractive than in the past as a destination for European companies exporting their products. Higher tariffs and increased uncertainty are having a negative impact on global economic growth. While not all companies are affected in the same way, many will have to adapt. We have analyzed which companies will be less affected by the high tariffs and identified three groups that have less to worry about.

1. Service providers and local producers

Firstly, it should be noted that not all companies are affected by tariff restrictions. Goods produced locally do not pass through border barriers where import duties could be levied. This forms the basis of Trump's idea that companies should relocate their production to the US to create jobs there. However, this is often an expensive move, especially given that labour costs in the US are high compared to other regions. Companies that already produce locally are in the best position. This is often the case for food, for example, or more generally for products with low value density and therefore high transport costs. Providers of services, software, and consultancy are also not usually affected by customs barriers.

2. Companies with high profit margins

Customs duties are usually paid on intermediate products or internal transfer prices at the port, rather than on the final prices paid by consumers. Companies with high gross profit margins are therefore less affected by the implicit cost increase resulting from higher customs duties. With a gross margin of 60 per cent, for example, customs duties would only apply to 40 per cent of product costs. This increase is easier to compensate for than it would be with a correspondingly low profit margin.

3. Companies with pricing power

Products with unique features or an irresistible brand image tend to be in demand at slightly higher prices, since end customers have no alternatives. Suppliers of such products generally already achieve high profit margins, so they are less affected by cost inflation, and the volume losses resulting from price increases are minimal. Technology and luxury goods companies may have an advantage over other industries. Manufacturers of basic consumer goods also exhibit lower price elasticity, provided the products are not manufactured locally anyway.

Conclusion:

Not all companies will be affected equally by the US government's harsh tariff policy. Further strategies for European companies to successfully navigate the 'tariff war' include international diversification and developing new export markets outside the US. Despite the increased uncertainty, there are opportunities for European companies.