Moody's: Post-election US trade policies will be significant for European firms, success of Brexit

The next US administration's trade policies will be the most relevant issue for rated European companies, particularly in export-oriented sectors such as manufacturing, machinery and transport goods, says Moody's Investors Service in a new report published today. The US stance toward trade will also play a key role in the success of Brexit, as the US is the largest export market for the UK, and one of its main sources of imports. 

Moody's report, titled "European Non-Financial Corporates: Trade Policies Will be the Focal Point for European Industry Following US Presidential Election", is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. 

"The next US administration's stance on some existing and prospective trading relations will strongly indicate its willingness to enter into new international trade agreements, a key consideration for European, and in particular UK-based companies as Britain prepares to exit the EU," says Richard Morawetz, a Moody's Group Credit Officer for the Corporate Finance Group and author of the report. 

"That said, we believe that there would be an incentive for both countries to maintain strong trade links, although the UK is more reliant on the US for trade than vice versa," adds Mr. Morawetz. 

Both presidential candidates, Donald Trump and Hillary Clinton, have made numerous comments about existing or prospective trade relations, but few have related directly to Europe or the UK in particular. 

The European auto and manufacturing sectors are the most exposed sectors to US trade policies given their international supply chains and export orientation. The US is an important market for companies like Bayerische Motoren Werke Aktiengesellschaft (BMW, A2 positive), Fiat Chrysler Automobiles N.V. (Ba3 stable) and Daimler AG (A3 positive), but most rated automakers are global operators with a localized manufacturing presence across regions that reduces their exposure to trading regimes. 

The survival of 'Obamacare' under the next administration is uncertain. EMEA-rated companies operating in the US healthcare market, such as Fresenius Medical Care AG & Co. KGaA (Ba1 stable) and Grifols S.A. (Ba2 stable), are largely insulated from large shifts in demand due to the fairly non-discretionary nature of their products, but not necessarily from pricing pressures. 

Education has not featured as prominently as health care in the US election debate so far, and few rated European companies operate in the US education sector. However Pearson plc (Baa2 stable), is exposed to the fiscal health of US states and derives the majority of its total revenues and profits from North America. 

Both candidates' commitment to increasing infrastructure spending to varying degrees would be credit positive for European companies like Ireland-based CRH plc (Baa2 stable) and German-based HeidelbergCement AG (Ba1 positive), who supply cement and ready-mixed concrete to the US construction industry.