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Trump Strikes Back with Return of Trade Tariff for China

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Semiconductor stocks fall on Trump’s tariff warning

The VanEck Vectors Semiconductor ETF (SMH) fell more than 2% at the start of May 6, whereas tech-heavy NASDAQ (NDX-INDEX) fell 1% after US President Donald Trump once again threatened to raise tariffs on Chinese (FXI) imports.

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In December 2018, the United States and China started negotiating trade terms, and Trump postponed plans to raise tariffs on $200 billion worth of Chinese imports from 10% to 25% beyond January 1 and March 1. However, on May 5, Trump tweeted that the pace of negotiations with China has been very slow, and he is, therefore, planning to increase the tariff from 10% to 25% and might even impose a 25% tariff on the remaining $325 billion worth of Chinese imports.

Semiconductor sector among the hardest hit by trade war

China is the world’s manufacturing hub and the biggest market for US semiconductor companies. Apple (AAPL) reported its first iPhone revenue decline of 15% YoY mainly because of weak demand in China. Intel (INTC) reported demand weakness in its fast-growing data center segment as Chinese customers reduced their purchases. Micron Technology (MU) faced a blow as the overall demand for memory weakened. Many more chip companies were impacted by weak demand in China.

The market and chip companies can absorb a delay in trade talks, but they cannot handle a complete shutdown of talks. If the 25% tariff gets implemented, it will significantly impact the revenue of semiconductor companies, which have been banking on growth in the second half of the year and hoping that trade tensions between the United States and China ease.

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