And so the tariffs begin.

Yesterday, Trump’s tariffs against Canada, Mexico, and China all went into official effect.

I know they have a lot of people panicking. And the fear is made worse by assessments like this from The Kobeissi Letter, an influential global capital markets publication run by Adam Kobeissi.

Here’s his tweet from yesterday morning:

As the trade war ramps up, the U.S. average tariff rate is set to rise to levels not seen since the Great Depression.

Currently, the U.S. average effective tariff rate is set to rise as high as 20% or more.

This does not even include the potential 100% tariff on BRICS countries.

Considering how the Great Depression involved a banking system collapse, unemployment above 20%, and general economic misery for a decade or more… I would agree that the mere mention of association to today’s actions is cause for panic.

Fortunately though, with all due and sincere respect to Kobeissi, there’s further context you need to know about.

Now, I’m not saying we’re not in for some level of pain. Contrary to some opinions, I’m not so far gone on the “Trump train” that I can’t see negative consequences to some of his actions. I just believe in being rational about assessing those consequences, whatever they may be.

So today, instead of predicting the near end of the world as we know it, let’s look at what’s going on… what it might mean…

And two stocks that should do just fine regardless.

The Long and Short of Trump’s Tariff Position

First up, let’s review the Trump tariffs situation.

At the stroke of midnight on Tuesday morning, the U.S. imposed a 25% additional tariff on Canadian and Mexican imports and a 10% additional tariff on China. According to the White House’s website, however, “Energy resources from Canada will have a lower 10% tariff.”

Warren Buffett called this “an act of war, to some degree” on Sunday. But that’s not how Trump sees it. Scrolling further down the White House page, we find this rationale:

Previous administrations failed to fully leverage America’s economic position as a tool to secure our borders against illegal migration and combat the scourge of fentanyl…

Access to the American market is a privilege. The United States has one of the most open economies in the world and the lowest average tariff rates in the world.

Regardless of which viewpoint you, I, or Buffett ultimately take, there have been immediate repercussions to Trump’s decisions:

  1. Canada immediately retaliated with 25% tariffs on about $20.6 billion worth of U.S. exports. Another $86.01 billion worth – on items including cars, trucks, steel, and aluminum – will hit in three weeks if the dispute is not resolved.

  2. China’s measures included tariffs of up to 15% on numerous U.S. farm exports. Plus, it will subject about two dozen more U.S. companies to export controls and similar headaches.

  3. Mexico hasn’t announced its exact response yet but says it will do so on Sunday.

Honestly, that last bit sounds to me like Mexico is still hoping to cut a deal with Trump. Though, obviously, I could be wrong about that.

As for how long it will take for Trump, China, and Canada to reach a tariff-removing arrangement? I really can’t say. But I am certain we’ll survive in the interim.

That’s not meant to be flippant, and these international dramas are serious business. However, as the White House adds, “While trade accounts for 67% of Canada’s GDP, 73% of Mexico’s GDP, and 37% of China’s GDP, it accounts for only 24% of U.S. GDP.”

So those countries have more to lose in this exchange.

How Big the Tariff Impact Could Be on the U.S.

As for what Americans would feel, the Federal Reserve Bank of Atlanta released a new analysis indicating that consumer prices could rise 0.81% to 1.63% based on Trump’s tariffs. This assumes that companies choose to pass on anywhere from 50% to 100% of additional costs to their customers.

A product from Mexico or Canada that normally costs $20 would therefore increase to a range of $22.50 to $25.

That’s not pleasant, no matter how much more “the other guy” may suffer. But fortunately, this wouldn’t be on products across the board.

As the Atlanta Fed also pointed out, this price effect would vary from industry to industry. And consumers might not experience the full hit as companies decide how much to absorb in order to stay competitive and how much to pass on to their customers in order to stay profitable.

These entities, depending on who they are and what they do, might also simply get more creative about their sourcing. For instance, Trump himself built Trump Tower all those years ago out of concrete instead of steel to save money (and time, which is also money). Some could also look at sourcing products from other countries not impacted by tariffs.

It also should be noted that Trump’s tariff positions have already led multiple companies to declare huge investments into the U.S.

On Monday, I mentioned both Eli Lilly (LLY) and Apple (AAPL) announcing multibillion-dollar, American-based moves. But that list has since expanded to include:

  • Honda moving its next-generation Civic hybrid production to Indiana instead of making them in Mexico

  • Taiwanese chipmaker TSMC committing at least $100 billion to grow its U.S. operations

  • “Ireland’s Primark, Spain-based Mango, Canadian retailer Aritzia, and Japan-based Uniqlo” all “adding new stores across the U.S.,” according to CNBC

Of course, those will all take time to be implemented and really impact the U.S. economy.

But, in the meantime, tariffs are the new reality. And any investor looking to sidestep much of that uncertainty should keep these “tariff immune” sectors on their radar.

Tariff-Immune Sectors and a Looming ‘REIT Revival’

In a world with new tariffs, investors will want to keep a close eye on any companies that either source a majority of their inputs from impacted countries or ship products into those countries. Fortunately, there are plenty of REITs that should be largely immune.

One area I’m looking at is health care, especially senior-living facilities. Places like these are mission-critical and benefit from strong tailwinds like an aging population and the “silver tsunami.”

Retirement communities also aren’t the type of facilities that rely on imports or exports. They simply care for their patients. And as the American population gets older, there will be plenty of them.

I found it interesting that LTC Properties (LTC) – a real estate investment trust (“REIT”) that holds senior housing and nursing properties – was up about 3.4% over the past five days. The S&P 500 Index was down about 3% over the same period. That’s not a recommendation, but it’s a good example of how a sector like this would be largely immune from any trade disputes.

Another sector I’d look at would be REITs with high-quality tenants that provide essential retail products, the type of stuff consumers need no matter what.

Agree Realty (ADC), a REIT that owns 2,370 properties triple net leased to defensive tenants like:

  • Walmart

  • Tractor Supply

  • Dollar General

  • CVS

  • Lowe’s

Agree’s focus on recession-resistant lessees with strong credit profiles automatically puts it a step ahead of most other investment choices under these tariff-heavy conditions. Plus, it boasts over $2 billion of liquidity and exercises impressive capital deployment tactics.

And finally, I might recommend looking at apartment REITs…

In the event Canadian tariffs stay in place, one product that will be impacted is lumber. Canada provides as much as 30% of the lumber used in America. Yes, America has plenty of harvestable forests. But an industrial lumber mill isn’t the sort of thing you can scale up – or build from scratch – overnight.

And if lumber prices go higher, that means higher input costs for homes. That, of course, makes new homes more expensive at a time when home affordability is already a problem. And so, I expect apartments will continue to see plenty of demand.

One company we’ve held in our portfolio is Mid-America Apartment Communities (MAA). This REIT holds a portfolio of modern, desirable apartments across the American Sun Belt. And as readers should know by now, I think the Sun Belt is the place to be. Incidentally, Mid-America owns 10 apartment communities in my hometown of Greenville, South Carolina.

These are just a few ideas. There are more, and we’ll plan to discuss them in future issues.

But for all the fear, I have to say I actually feel myself getting a little excited at the prospect of a “REIT revival.” As I shared on Monday, REITs rose 4.2% in February while the major indices were down. The REITs I mentioned above have also been performing well during this latest bout of tariff fears.

Finally, after so many bruising years, these high-quality businesses might finally be getting the second look they deserve.

I know there’s plenty to be worried about. But there’s also so much to be excited about.

Regards,

Brad Thomas
Editor, Wide Moat Daily

MAILBAG

What are your thoughts on a REIT revival? Write us at [email protected].