23 Aug

US Stock Market Tumbles on China Tariffs, Trump Tweets

WRITTEN BY Sneha Nahata

The US-China trade war escalated again on Friday after China announced new tariffs on US goods. China recently imposed a new round of tariffs on about $75 billion worth of US goods. Plus, China would place an additional tariff of 5% or 10% on US goods in two rounds, one on September 1 and the other one on December 15.

China retaliates with tariffs

China’s new tariffs would reportedly target more than 5,000 products, including soybeans, crude oil, coffee, and whiskey. China would also resume its tariffs on US imports of automobiles and auto parts.

The new tariffs came as retaliation to President Donald Trump’s planned tariffs on imported Chinese goods. On August 1, Trump stated that his administration would impose an additional 10% tariff on $300 billion of imported Chinese goods starting in September.

China retaliated by devaluing its yuan currency to its lowest level in a decade. China also reportedly restricted the purchase of US agricultural products, and it announced that it would impose tariffs on farm goods purchased from the US after August 3. However, on August 15, Trump decided to postpone the tariffs on China until December 15.

Trump reacted through his tweets

Through a series of tweets, President Trump ordered US companies and manufacturers to stop their operations in China and find an alternative to doing business in the country. In a four-part tweet on Friday, Trump stated,  “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.” Trump’s tweets came after China’s retaliatory tariff announcement.

Through his tweets, Trump also ordered all postal and parcel carrier companies—including FedEx (FDX), Amazon, United Parcel Service (UPS), and the US Postal Service—search for and refuse deliveries of fentanyl from China and other countries.

In response, UPS noted that it “follows all applicable laws and administrative orders of the governments in the countries where we do business. We work closely with regulatory authorities to monitor for prohibited substances.”

FedEx’s statement was similar, as the delivery giant noted, “FedEx already has extensive security measures in place to prevent the use of our networks for illegal purposes. We follow the laws and regulations everywhere we do business and have a long history of close cooperation with authorities.”

Trump added that he would respond to China’s tariffs on Friday afternoon.

Markets tanked on China’s tariffs and Trump’s tweets

The broader markets reacted to Trump’s tweets by tanking to session lows on Friday. On Friday, the Dow Jones Industrial Average nosedived more than 600 points (or 2.3%). The S&P 500 and the Nasdaq Composite slid 2.5% and 2.9%, respectively.

The US Treasury yields also fell as investors fled for safe-haven stocks. In our view, high-yield dividend stocks are a solid bet amid falling yields.

The major tech stocks were also in the red. Apple (AAPL) fell the most and is currently down more than 4%. Notably, Apple is highly sensitive to trade war issues. According to a Bloomberg report, Apple generated nearly 20% of its revenues from China in 2018.

China is crucial for Apple’s iPhone sales, as the country is the world’s largest smartphone market. Plus, Apple designs its iPhone models in the US but assembles them in China. Apple had even planned to move some of its production out of China in June. However, it might take more time to leave the country altogether.

Caterpillar stock was another casualty on the day, declining by 2.9%.

Semiconductors also slid lower

With heavy exposure to China, semiconductor stocks are also impacted by the trade war. According to Morgan Stanley strategists, cited by CNBC in June, semiconductor and chip stocks generate more than 50% of their revenues from China.

NVIDIA (NVDA), Advanced Micro Devices (AMD), Broadcom (AVGO), Micron (MU), and Qualcomm (QCOM) all fell 4%–6% during Friday’s session. The VanEck Vectors Semiconductor ETF (SMH) also slid 3.9% as chip stocks plummeted.

This retaliatory tariff war is putting pressure on the economies of both countries. On Monday, Commerce Secretary Wilbur Ross granted a 90-day reprieve to Huawei, allowing China’s telecom companies to purchase components from US-based companies.

This reprieve boosted investors’ hopes that the escalated trade war between the US and China would ease a bit. However, as both countries resumed the trade war with new rounds of tariffs, the global market scenario became gloomy again.

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