Trump To Attack Amazon, Boost Caterpillar

Donald Trump has taken a stance on a variety of economic issues including foreign currency devaluation, corporate tax rates, corporate inversions, overseas cash balances and H1B visas. Some of his positions are exactly right, while others are questionable at best.  However ALL of Trump’s positions are very strategic and politically motivated. Further, Trump’s stance on these issues will undercut a headline-grabbing company that doesn’t like him anyway (Amazon), and boost a conservative-leaning company that provides a lot of middle-class jobs (Caterpillar).

image: donaldjtrump.com

Foreign Currency Devaluation
Foreign currency devaluation is a hot topic in Donald Trump’s presidential campaign that could have a positive impact on Caterpillar while simultaneously undercutting Amazon. Before getting into the hazards of tariffs and the benefits of trade, let’s consider Trump’s comments at a recent debate:

“You look at Caterpillar Tractor and what’s happening with Caterpillar and Kamatsu (ph). Kamatsu (ph) is a tractor company in Japan. Friends of mine are ordering Kamatsu (ph) tractors now because they’ve de-valued the yen to such an extent that you can’t buy a Caterpillar tractor. And we’re letting them get away with it and we can’t let them get away with it.”

In the same debate, Trump also said:

“China is ripping us on trade. They’re devaluing their currency and they’re killing our companies.”

Trump’s comments are strategic and politically motivated because they are capitalizing on the very real hardships American industrial companies are facing.  Caterpillar is a specific example of a company with international sales, and it is facing very significant challenges because of the strong US dollar (i.e. other countries are devaluing their currencies which makes their products less expensive relative to Caterpillar products).  Additionally, Caterpillar is located in Peoria Illinois, an area that leans Republican and where Trump can pick up votes. Further, bashing foreign countries for devaluing their currencies plays right into Trump’s “Make American Great, Again” theme, and it gives angry voters a way to vent their frustrations.

For reference, the majority of Caterpillar’s sales are outside the U.S (you can see this data in our earlier report: Caterpillar: A Fallen Angel with a Big Dividend), so a strong U.S. dollar hurts them more than say Amazon- a company that is just now starting to ramp up non-US business. And relative to many other aggressive growth stocks, Amazon would be less helped by a targeted “currency war” simply because they do more business domestically (you can see this data in our previous Amazon research report), and they don’t actually manufacture anything anyway (more on Amazon later).

And with regards to implementing a foreign currency war by imposing tariffs that foreign countries will quickly reciprocate- it’s generally a bad idea.  Trump may be able to provide some relief to Caterpillar, but reciprocating tariffs from other countries will open a Pandora’s Box of new costs across the market that will make the overall economy worse off.  Generally speaking, trading partners (i.e. the U.S. and other countries) can achieve a higher standard of living through free trade.  So unless Trump is suggesting tariffs and currency wars simply to gain negotiating leverage with foreign countries (he did write “The Art of the Deal”), then his stance on currency devaluation is questionable at best.