There’s a lot of uncertainty right now about tariffs. But in my view, the U.S. will be a net winner out of the trade wars, and the result will be an environment favorable to companies like Energy Transfer (ET 1.83%).
A lot could go wrong
To be clear, Energy Transfer won’t necessarily perform well if I’m wrong. Higher tariffs on raw materials (steel and albumin) will raise costs for pipeline companies, and the mutually assured destruction of ongoing trade conflict escalations could ultimately damage the economy. That’s not good news for companies that rely on volume growth in energy.
Why the U.S. can be a net winner
That said, the U.S. has many cards in its favor. The largest economy in the world, its trade surpluses with many countries show just how much foreign nations structure their economies to export to the U.S. Take away that export market, and the structural adjustment could take far longer than it will take the U.S. to shift to other supplying countries.
That isn’t the only danger for the main antagonist, China. It also holds an estimated $760 billion worth of U.S. Treasuries, and the last thing China wants is a collapse in confidence that cuts the value of those assets.
The tariffs appear to be tactical and strategic. Tactically, they stimulate trade deals that remove impediments for U.S. exporters by creating a more level playing field. Strategically, they encourage more industrial activity and investment in the U.S. Even if President Trump removes all the tariffs tomorrow, the threat of a reappearance will always exist. Hence, companies must consider manufacturing in the U.S. to service the U.S. market.
Image source: Getty Images.
If successful, the moves could shift manufacturing to the U.S., which should increase domestic gas demand. Trade deals could result in the U.S. selling more LNG abroad.
Both outcomes would be great for midstream gas companies like Energy Transfer, and there’s a significant chance the 90-day pause in tarrifs is a prelude to creating those outcomes.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.