Traders are cheering a near-500 point increase in the Dow Jones Industrial Average midday Friday as the US and China have reportedly struck a tentative initial trade deal.
According to a report from Bloomberg, the two nations came to a soft agreement ahead of President Trump's scheduled meeting with Chinese Vice Premier Liu He at 2:45 pm ET. The agreement, which could serve as a framework for a larger deal later on, would see China agree to purchase additional US agricultural products in exchange for the suspension of planned US tariff increases on October 15.
This morning, Trump tweeted, “Good things are happening,” ahead of a meeting with China Vice Premier Liu He scheduled for 2:45 ET. Investors have taken his word for it, boosting the DJIA to nearly 27,000 and juicing the Nasdaq and S&P almost 2%.
Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days. I will be meeting with the Vice Premier today. All would like to see something significant happen!— Donald J. Trump (@realDonaldTrump) October 11, 2019
Nehal Chokshi, managing director for enterprise and consumer technology at Maxim Group, told CNBC’s Squawk Box on Tuesday that certain US industries are in a unique position to reap benefits, including US contract manufacturers.
"One of the key issues here is theft of intellectual property of non-Chinese companies," Chokshi said. “[I think we’re going to see] continued movement of the empirical data out of China — ie the actual products that are being manufactured in China. So contract manufacturers outside of China, those will tend to benefit."
Chokshi namedropped IEC Electronics Corp (NYSEAMERICAN:IEC), a manufacturer with operations in Rochester, New York, as one such company to watch.
IEC offers electronics manufacturing services to advanced technology companies that produce mission-critical products in the aerospace, defense, industrial and medical sectors. The company recently secured a $50 million contract with a Tier 2 US defense contractor.
Thomas Barbato, IEC’s CFO, said the company’s focus on complex, often life-saving products has allowed it to weather the storm perhaps better than most.
“Due to the highly regulated nature of our served industries, our customers are willing to pay a premium for quality,” Barbato told Proactive in an interview. “The tariff, while impacting us from a raw material perspective, is much less severe than other companies who are manufacturing complete units in China, therefore we’re much more stable”
When it comes to protecting IP, IEC has the advantage of doing all of its manufacturing in the US.
If IP protection or the impact of tariffs drives companies to move manufacturing back to the US, IEC would stand to benefit as its competitors stop using cheaper labor overseas.
“To the extent that tariffs are imposed, it will have some impact on work that moved in the past to countries like China ultimately moving back to the US,” he said. “Companies like IEC can benefit from that, [other companies] moving from these lower cost geographies back to the US.”
Whatever happens, Barbato is ready for a deal, even a partial one. Dealing with the administrative burden of certain tariffs, he said, beats dealing with the quick-shifting sands of a trade war.
“I think it's clear there will be some level of tariffs put in place,” Barbato said. “At the end of the day just getting a resolution to the issue would be a benefit.”
—Updated to include trade updates and comment from IEC's CFO—
Contact Andrew Kessel at [email protected]
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