On Friday, the US stock market remained highly volatile. Toward the end of the day, the Dow Jones erased most of the gains it saw during the session after President Trump made a controversial statement about the China trade deal. In a press briefing this morning, Trump said, “We’re talking to China. We’re not ready to make a deal, but we’ll see what happens.”
Trump went on to highlight how China has been haunting the US for decades. He also blamed other US leaders—without naming any—for not doing enough about the problem. “We have no choice but to do what we’re doing,” he added.
Growing accusations muddy the waters for a China trade deal
Earlier this month, President Trump accused China and Europe of currency manipulation. He emphasized the importance of taking necessary action instead of “being the dummies who sit back and politely watch.”
Yesterday, the Chinese yuan fell to its lowest level in over a decade after China’s central bank set its official reference rate at 7.0039 yuan per dollar. Note that a weak yuan-per-dollar rate gives a competitive advantage to Chinese exporters. When Chinese exporters sell their products on the international market, a weak yuan ensures that they maintain high profit margins after converting the dollars earned from export sales into local currency.
Trade war damaging US businesses
Political tensions between the world’s two largest economies are, arguably, at their worst right now. The Trump administration continues to accuse China of hurting the US economy with high tariffs on US companies. In retaliation, the US has imposed tariffs on Chinese imports multiple times in the last year. Nonetheless, China has also retaliated. It increased tariffs on imported goods from the US.
These high tariffs from both sides are causing significant collateral damage to large companies in both the US and China. For instance, a rise in tariffs on US cars in China has taken a toll US carmakers’ profitability. Ford (F), General Motors (GM), and Tesla (TSLA) have all been affected. Automakers have already warned investors that a further escalation in the US-China trade war will likely cause them even more damage.
These concerns are why these automaker stocks tumbled on August 9. GM, Ford, and Tesla lost 1.2%, 1.2%, and 1.4%, respectively, on Friday.
Hurting the hopes of a China trade deal
In the tech sector, Apple (AAPL) and chipmakers also have been facing the heat of the ongoing trade tensions. The trade war has dimmed their future growth outlook. In June, Apple wrote a letter to the Trump administration. It highlighted that if the US imposed tariffs on more Chinese imports, they would reduce Apple’s contribution to the US economy.
Earlier this year, the US imposed a ban on China’s largest smartphone maker, Huawei. The ban restricted US chipmakers from doing business with Huawei, which used to buy chips from companies like NVIDIA (NVDA), Advanced Micro Devices (AMD), Broadcom (AVGO), and Intel (INTC) in large quantities.
In today’s briefing, Trump surprised markets by taking a tough stance against Huawei again. He said, “We’re not going to do business with Huawei. We’re not doing business with them. And I really made the decision.”
His statement is likely to disappoint China. And it also raises questions about US chipmakers’ future growth outlook. Trump’s stance is also expected to hurt the chances of a near-term China trade deal.
Possibility of a market crash
On August 9, tech stocks Apple, INTC, and NVDA fell 0.8%, 2.5%, and 2.6%, respectively. In contrast, Broadcom and AMD rose 1.8% and 0.8%.
On Thursday, the chipmaker Broadcom announced its acquisition of Symantec’s Enterprise Security Business in a $10.7 billion deal. News about the deal kept the stock positive on Friday.
Similarly, AMD stock has seen massive gains after launching the second generation of its AMD EPYC server CPUs.
In the fourth quarter last year, the US stock market saw a massive sell-off after escalations in US-China trade tensions. So investors should remain cautious this quarter as well. Trump’s recent statements jeopardize the chance of a China trade deal, which could trigger a market crash.