&l;p&g;&l;img class=&q;dam-image shutterstock size-large wp-image-1107202847&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/1107202847/960×0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g; Shutterstock
&l;em&g;Since President Donald Trump announced stiff tariffs on Chinese goods, as well as on U.S. allies, the stock market has trended lower. For perspective on what may lie ahead, we turn to Nicholas Atkeson and Andrew Houghton, the founders of&a;nbsp;Delta Investment Management&a;nbsp;in San Francisco, for guidance:&l;/em&g;
&l;strong&g;Larry Light:&l;/strong&g; Who is hurt the worst in a trade war, America or our antagonists?
&l;strong&g;Andrew Houghton:&l;/strong&g; The U.S. represents about 5% of the world&a;rsquo;s population but consumes about 24% of the world&a;rsquo;s energy.&a;nbsp;Americans eat 815 billion calories of food each day, roughly 200 billion more than needed.&a;nbsp; We throw out 200,000 tons of edible food daily.&a;nbsp;The average American generates 52 tons of garbage by age 75.&a;nbsp; We use one-third of the world&a;rsquo;s paper.&a;nbsp;When the U.S. imposes tariffs, it hurts foreign producers more than domestic producers in aggregate.
&l;strong&g;Light:&l;/strong&g; How does that show in stock performance?
&l;strong&g;Nicholas Atkeson:&l;/strong&g; In winner-loser terms, U.S. stocks measured by the S&a;amp;P 500 are up 3.2% year to date, so they are a winner. And the loser: Foreign stocks measured by the Vanguard Total International Stock Index are down 3.5% YTD.
&l;strong&g;Light:&l;/strong&g; What&a;rsquo;s the scorecard for U.S. stocks by category?
&l;strong&g;Atkeson:&l;/strong&g; Small U.S. companies have less exposure to foreign trade than do large companies. Small U.S. companies measured by the iShares Russell 2000 ETF are up 10.7% YTD, a clear winner. But on the loser side are large U.S. stocks with high international trade exposure, as seen by the SPDR Dow Jones Industrial Average ETF, minus 0.2% YTD.
Here&a;rsquo;s a chart that spells all this out.
&l;img class=&q;size-full wp-image-2051&q; src=&q;http://blogs-images.forbes.com/lawrencelight/files/2018/06/trade.jpg?width=960&q; alt=&q;&q; data-height=&q;528&q; data-width=&q;864&q;&g; Who gains and who loses as America slaps tariffs on China and other nations.
&l;strong&g;Light:&l;/strong&g; How will individual U.S. stocks with international exposure fare?
&l;strong&g;Houghton:&l;/strong&g; On&a;nbsp;July 6, the U.S. plans to implement $34 billion in China tariffs, which is a 25% duty, on a variety of industrial items. This will negatively impact Dow Jones industrial average component stocks 3M, Apple, Boeing , Caterpillar, General Electric and United Technologies.
Many stocks outside of the DJIA also will be harmed, like Deere, Harley-Davidson and Qualcomm.&a;nbsp; There are an additional $216 billion worth of China tariffs under review.
With regard to the rest of the world, the U.S. has placed a 10% tariff on steel and 25% tariff on aluminum, with South Korea exempted.&a;nbsp; Under review is a 25% tariff on automobiles, SUVs and auto parts.
&l;strong&g;Light:&l;/strong&g; What is the upshot for interest rates?
&l;strong&g;Houghton:&l;/strong&g; Jerome Powell, chairman of the Federal Reserve, said this week that the developing trade war may cause the Fed to revisit its U.S. economic outlook to the downside as many businesses are delaying investment decisions until the trade outlook is less uncertain.
&l;strong&g;Light:&l;/strong&g; How should investors deal with all this?
&l;strong&g;Atkeson:&l;/strong&g; The trade war is not over.&a;nbsp; Our chart shows much of the negative expectations from a trade war have been priced into the market, especially foreign stocks and large U.S. stocks.&a;nbsp; If the trade war outlook were to turn more favorable, we should expect many of the underperforming sectors of the global stock market to begin to play catch-up.
From a global stock investment standpoint, diversification may be the best way to win the trade war as an investor.&a;nbsp; Underperforming large capitalization U.S. stocks and foreign stocks could become the winners in the second half of 2018 on any news of an improvement in the trade dialog.&l;/p&g;