4 Stocks that Could Benefit from Trump's Tariffs on Mexico and Canada

Last month, the global markets were spooked by Trump's threat to impose tariffs on a small country of Columbia.

At that time, markets were nervous about the possibility of wider tariffs on bigger economies.

Well, that time has arrived, much to the despair of the bulls in the stock market.

US President Donald Trump gave Canada and Mexico a one month breather in his tariff wars. Now that the one month period is up, the tariffs, 25% on both countries, will be implemented.

This has rattled financial markets. There are concerns that Trump will go ahead with his plan of reciprocal tariffs next month.

We will cover that development, if it happens, here at Equitymaster. But in this editorial, we will cover an interesting point that should be on every investor's radar.

Which listed Indian companies could potentially benefit from Trump's tariffs on Canada and Mexico?

Read on...

#1 UPL

UPL is the business of agrochemicals, industrial chemicals, chemical intermediates, speciality chemicals, and seeds.

It is the 5th largest global agrochemical company, the 6th largest global crop protection company, and is also the largest speciality chemicals company in India.

It has an extensive portfolio of over 14,000 products, which it supplies to over 140 countries. The company has 43 manufacturing facilities across the world and has a network of over 85,000 retailers and 25,000 dealers.

UPL also has 30 research and development (R&D) facilities and has been granted over 1,800 patents.

Chemical exports to the US are likely going to be disrupted due to Trump's tariffs. This presents a good opportunity for companies like UPL to plug gaps in the supply chain.

During major disruptions in international trade, large companies with a well-diversified product portfolio, can take advantage of their manufacturing base to step in and fill demand.

UPL is in a good position to do just that in the ongoing trade war.

UPL Stock - 1 Year

For more details, see the UPL company fact sheet and quarterly results.

#2 Cummins India

Cummins India Ltd, a subsidiary of Cummins Inc. (USA), is a leading manufacturer and distributor of diesel and alternative fuel engines, power generator sets, and related components and technology.

The company operates in various business segments - engines, power systems, distribution, and components. It also provides backup power solutions, particularly for the rapidly growing data centre industry, and has the largest dedicated support network in the world.

The company caters to a diverse range of industries including automotive, power generation, industrial, and marine.

The automotive sector will be one of the worst hit during this round of tariffs by the Trump administration. Mexico and Canada are both big exporters of vehicles and auto components to the US.

Thus, exporters operating in these countries that also have a presence in India will look to source some products for sale to the US from India. Cummins India could be prominent among these companies.

Cummins India could potentially export diesel and alternative fuel engines to the US, if these are targeted by the tariffs. The company produces a variety of engines in India ranging from 2.8 to 95 litres.

It also makes diesel and alternative-fuel power generators up to 3,000 kW (3,750 kVA).

Cummins India Stock - 1 Year

For more details, see the Cummins India company fact sheet and quarterly results.

#3 JSW Steel

Steel will be a commodity that will feature prominently on Trump tariffs. Trump has repeatedly mentioned steel, along with aluminium and a few others, as targets for tariffs.

Mexico and Canada will be negatively impacted but US firms will be too. As a basic industrial material, the US needs a regular flow of steel to keep its economy going. Disruptions could be devastating to many sectors in the US.

Thus, US firms will likely look to alternate suppliers quickly. One option is to source steel domestically from US based producers. But these firms will have limited spare capacity. The ones in a position to increase supplies will likely do so a premium.

JSW Steel operates a steel plant in Ohio USA with a 1.5 million tonnes per annum (MTPA) production capacity of crude steel and 3 MTPA finishing capacity.

The company also operates a plate mill and pipe mill in Baytown Texas with capacities of 1.2 MTPA and 0.55 MTPA respectively.

Thus, the company could see some benefits of this tariff war.

JSW Steel Stock - 1 Year

For more details, see the JSW Steel company fact sheet and quarterly results.

#4 Infosys

IT firms have a strong presence in the US but what is sometimes ignored is their presence in Canada.

The Canadian operations serving US customers could be impacted due to the tariffs. However, Indian IT firms, with their global scale, have dealt with tariffs during Trump's first term as US President.

These companies typically bring the projects that are impacted to India. This has the benefit of avoiding tariffs as it outsourced work becomes an Indian export to the US as opposed to a Canadian export.

The secondary benefit is the reduction in costs. Labour in India is much cheaper than in Canada and thus, such a shift in service delivery will be positive for the company's margins and profits.

While small IT firms may not see much impact, large firms like Infosys could potentially benefit in a meaningful way.

Infosys Stock - 1 Year

For more details, see the Infosys company fact sheet and quarterly results.

Conclusion

Our world is an interconnected place. In a globalised world, a decision that hurts one country will have a ripple effect on another.

An interesting four years lie ahead for financial markets. Navigating Trump's policies as well as his occasional eccentricities will become par for the course. The long-term consequences as well as the second and third order effects of his tariff policies will only be known later.

But such developments should not distract investors from their main job of identifying fundamentally strong stocks trading at reasonable valuations so as to buy them for the long term.

In this market correction, evaluate company fundamentals, corporate governance, and valuations of the stocks as key factors when conducting due diligence before making investment decisions.

For more about the impact of Trump's policies on the Indian market watch this video.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...