Appreciating US Dollar & The Potential Scrapping Of TPP To Have An Adverse Impact On Consumer Good Companies

by Trefis Team
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After Donald Trump was elected the president of America, the US dollar has strengthened against most currencies across the world. The US dollar index has appreciated over 4% since election results, on the hopes that an easing in fiscal policy will push up inflation. Some of Trump’s promised policies include deregulation, improvement in trade deficit by increasing duties on imports and better employment opportunities for the US citizens by curbing outsourcing. While some sectors like banking and metals have shown optimism regarding this, the stocks of consumer companies have seen a considerable fall. The main reasons for this fall can be attributed to three factors:

  1. Strengthening US Dollar, which is likely to cause currency headwinds.
  2. Tough policies regarding trade with China proposed by Trump.
  3. Potential Scrapping off of Trans Pacific Partnership (TPP), which would have otherwise been advantageous for consumer companies.

Here’s why the appreciating US dollar (against most major currencies) and Trump’s stance on China and TPP will have an adverse impact on the consumer good sector.


See our complete analysis for Procter & Gamble

See our complete analysis for Unilever

Worsening Currency Situation Might Add To the Woes Of Already Struggling Topline

A large proportion of the sales of consumer goods companies come from outside the U.S. Companies like Kimberly Clark (NYSE:KMB), Unilever (NYSE:UL), Colgate Palmolive (NYSE:CL) and P&G (NYSE:PG) have already suffered from the high currency headwinds and volatility in Latin American markets, in 2015. The picture this year is not looking better as most of the companies were already set to report lower revenues in 2016 even before the elections, but now, this problem has been aggravated by further rise of the US dollar post elections. If US dollar continues to strengthen, then it can lead to further decline in estimates for 2016 as the currency headwinds are likely to bite off larger chunk of the topline.


Potential Anti-Trade Policies Are Another Reason For Pessimism

  • Trump has proposed a tough stance on trade with China, which includes imposing a 45% duty on the products imported from the country. Many analysts are predicting that if these policies come into effect, then Chinese might take some counter measures in the form of trade barriers against the U.S. businesses running in their country. The consumer companies, especially Colgate Palmolive and Procter & Gamble are heavily dependent on China for their sales due to the huge population and buying capacity of the consumers there. Colgate derives over $5 billion of its sales from Asia and P&G has over $5 billion of its revenue coming just from China. Moreover many of them have their production facilities running in China, which might get affected in the wake of any counter measures. Earlier in 2012, Donald Trump had criticized Procter & Gamble’s decision to shift their beauty business from Cincinnati to Singapore.
  • Trump has also signaled scrapping of the Trans Pacific Partnership (TPP) which would have allowed the U.S. to trade freely with Asia Pacific (excluding China) and Latin American countries. Given the fact that these emerging nations are the key markets for most of the consumer product companies, it will be a blow to their hopes of free movement of goods between the countries and reduction in tariffs. P&G had appreciated TPP as it believed that this partnership will reduce manufacturing costs and will increase consumers’ access to innovations. ((statements on trans pacific partnerships)) Around 60% of P&G’s sales come from their overseas operations.

Amidst all the talks, any of these policies are yet to be materialized and the stocks have largely plunged due to pessimism. It will be interesting to note the reaction of these stocks in case there is any change or shift in the policies advocated by Donald Trump.



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