United States-China trade war and stock market
In The Art of War, Sun-Tzu said, “There is no instance of a nation benefitting from prolonged warfare.” These words certainly seem to apply to the US-China trade war, which is now in its second year with no signs of retreat.
Both countries are feeling the impact of the war. The SPDR S&P 500 ETF Trust (SPY) fell 4.6%, and the Xinhua China 25 Index (FXI) fell 9% in May. In fact, the war is also impacting other nations like South Korea, whose economy depends heavily on trade with these two countries. The iShares MSCI South Korea Index Fund (EWY) fell 10.7% in May and 6.7% YTD.
Impact of the trade war on the semiconductor industry
One of the biggest losers in this trade war is the technology industry, the semiconductor industry in particular, as the US semiconductor companies rely heavily on China for revenue, and Chinese companies rely heavily on US companies for technology. The VanEck Vectors Semiconductor ETF (SMH) fell 14.3% in May driven by over a 23% decline in Qualcomm and Skyworks, which earn more than 60% of revenue from China.
The above declines came in May as the United States increased its tariffs on $200 billion worth of Chinese imports from 10% to 25% and also made technology transfers to China’s biggest telecom equipment maker, Huawei, difficult. Most US chip companies including Qualcomm, Advanced Micro Devices, and Micron stopped shipments to Huawei and its allies.
The United States has forced other countries to stop using Huawei technology, which has put countries like South Korea in a dilemma. Huawei is a major customer of South Korean memory chipmakers Samsung and SK Hynix.