Tariff War: More Concerns for Chip Stocks?

Trump imposed new tariffs on China

The US-China trade war escalated on Sunday after President Trump moved ahead with new tariffs on China. The Dow Jones futures, S&P 500 futures, and Nasdaq futures fell early on Tuesday morning. At 6:30 AM ET today, the Dow Jones futures fell by more than 200 points, while the S&P 500 and Nasdaq futures fell by more than 20 points and 70 points, respectively.

President Trump has imposed around a 15% duty on Chinese imported goods worth $110 billion. The tariffs would hurt industries including footwear, apparel, home textiles, flash memory devices, smartwatches, and smart speakers. President Trump’s tariffs would also impact Apple’s (AAPL) Apple Watch for the first time.

President Trump decided to raise the tariffs to 30% from 25% on $250 billion worth Chinese goods on October 1. The tariffs would mainly dent machinery, semiconductors, and chemical companies. Notably, the tariffs would hurt US companies making furniture, vacuum cleaners, and handbags. President Trump also announced a 15% tariff on about $160 billion in Chinese goods on December 15. The tariffs would hurt US companies involved with laptops, tablets, and cellphones. Earlier, he planned to impose an additional 10% tariff on December 15. However, President Trump preponed the duties from December to September after China’s tariffs on US goods. China decided to impose an additional 5% or 10% tariff on US goods worth $75 billion.

President Trump is tough on China

The trade war has been going on since last year. The issues have shaken the investment markets and dampened the global market scenario. Reportedly, US business groups, including farmers, manufacturers and tech firms, have been urging the US and China to refrain from any additional escalation. On August 29, there were reports of trade war talks. China wants to resolve the trade war with a “calm” attitude.

However, President Trump is still concerned about China’s business practices. In President Trump’s tweets last month, he ordered US firms to stop any trade with China and start looking for an alternative.

On Monday, Anna Ashton, the senior director at the US-China Business Council, pointed out to CNBC that President Trump doesn’t want a trade deal with China to win the 2020 presidential elections. She expects that “any American administration henceforth is going to be tougher on China.”

Chips stocks are sensitive to trade war

The new tariffs imposed over the weekend will likely hit every US consumer product. Notably, the new tariffs would impact US tech stocks. As a result, the tariffs would raise the prices of goods for US consumers directly.

Semiconductor stocks including NVIDIA (NVDA), Advanced Micro Devices (AMD), Broadcom (AVGO), Micron (MU), and Qualcomm (QCOM) would also suffer due to the new tariffs. According to Morgan Stanley strategists, cited in a CNBC report, semiconductor and chip stocks generate more than 50% of their revenues from China. The new tariffs on Chinese imported goods might raise the prices for graphic cards. Advanced Micro Devices and NVIDIA deal in the graphic cards segment.

Micron got nearly 13% of its overall revenues from Huawei in the first six months of fiscal 2019. Trade restrictions with Huawei dented DRAM and NAND product sales during the third quarter. Qualcomm was also one of the biggest victims of the Huawei trade ban. Trade war escalation would hurt the chip stocks sales in the near term.

Impact on other tech stocks after Trump’s tariffs

Apart from chip stocks, Apple is very sensitive to the trade war. The new tariffs would impact the company’s Apple Watch category. The 15% tariff in December would impact Apple’s iPhone sales. The tariffs would make iPhones more expensive. According to Bloomberg, Apple generated nearly 20% of its revenues from China last year. China is the world’s largest smartphone market.

President Trump’s tariffs could impact Tesla, General Motors, Ford, and Boeing. The companies have high exposure to the Chinese market.

Meanwhile, President Trump stated that the US is talking to China. He supports the trade negotiation meeting scheduled in September.