Moody's: Proposed China tariff hike would have mixed credit effect on US sectors

Proposed Chinese tariffs on US export goods would have mixed credit implications for US sectors, Moody's Investors Service says in a new report. Agriculture and agriculture-related sectors would be the most affected, while the impact for the aerospace, automobile, chemicals, plastics and rubber industries would be relatively modest.

"Among US sectors, the largest credit impact of the proposed 25% tariff on US exports to China would be felt in the agriculture and related sectors," said Elena Duggar, a Moody's Associate Managing Director. "Affecting up to $19 billion of US agricultural and food products exported to China, the tariff hike would be credit negative for US soybean-producing states such as Iowa, food-processing companies including Cargill Inc., fertilizer producers, the Federal Farm Credit System, and structured transactions based on agricultural loans."

Meanwhile, if the current weight classification of aircraft imports that would be subject to the higher tariff specifies "operating empty weight," the tariff would only minimally affect Moody's-rated US aircraft manufacturers, such as Boeing and General Dynamics. The tariffs would likewise have only a modest impact on US auto manufacturers, since Ford and General Motors manufacture the vast majority of the cars and trucks they sell in China locally. Among automotive companies, Tesla will be most burdened by the tariffs, with 20% of its revenue generated from exports to China.

For US chemicals producers, the proposed tariffs would be modestly negative, since the commodity nature of many of the chemicals that would be affected makes it easy for companies to reroute trade flows, while maintaining production levels at many low-cost US facilities. In addition, plastics exports to China constitute only a small share of total production for companies including The Dow Chemical Company, Exxon Mobil and Chevron Phillips Chemical Company.

Overall, the credit impact of the proposed tariffs on its rated companies will be mitigated by two main factors, Moody's says. While many of the companies have wide, multinational networks that will allow them to reroute trade flows, or own production facilities in China itself, with the exception of soybeans, the currently proposed product list excludes the largest and most specialized US export goods within each product class.