US-China trade war concerns
In the previous part of this series, we discussed that the world’s two largest economies, the US (QQQ) and China, are imposing import tariffs on each other’s products. After two rounds of trade negotiations in May 2018, the US (SPY) announced on June 18 that it will impose additional import tariffs on Chinese goods.
A trade war could have a significant impact on the broader economy as well as on specific sectors. China’s economy hugely depends on both manufacturing and services activity.
China is a major consumer and exporter of commodities. Thus, the imposition of import tariffs on Chinese goods is likely to affect the metal sector. The US also exports various finished products and consumer staples products to China (FXI) (YINN), so the retaliatory tariffs from China will likely affect the US’s consumer staples sector.
Similarly, we’ll see some pullback in the tech sector. JPMorgan Chase’s global equity strategist, Mislav Matejka, already warned in March 2018, “Trump’s tariffs on China are expected to target aeronautics, modern rail, new energy vehicles and high-tech products. Tech hardware and machinery are among the largest U.S. import categories, and, in our view, are at risk.” Further, the trade war is likely to affect the financial flow between these two economies.
In the next part of this series, we’ll analyze fund managers’ view on the US economy.