What Industries Are Most Affected by the Trade War With China?

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What Industries Are Most Affected by the Trade War With China?

On May 10, the U.S. increased duties on $200 billion worth of Chinese imports from 10% to 25%, endangering a trade agreement that the two nations are now negotiating. “Necessary countermeasures” will be taken, according to the Chinese authorities.

Due to trade concerns, the S&P 500 and Dow Jones Industrial Average both fell more than 2% last week. Even harder impacted, the tech-focused Nasdaq 100 fell 3.3%. Futures pointed to a difficult start on Monday as worries about the nature of China’s reprisal deepened.

Some sectors are likely to be hurt worse than others if a full-fledged trade war between the two nations materializes. We’ll look at some of the sectors that could be most vulnerable to this influence below.

Automobiles

The automobile sector in the United States is one of the most severely impacted by trade conflicts. China hiked its taxes on imported cars built in the United States last year from 15% to 40% in response for American levies. The majority of cars purchased by Chinese customers are domestically produced, but U.S. manufacturers, such as Tesla Inc. (TSLA), bear the brunt of trade disputes. Following a fresh wave of trade duties in July, the electric vehicle manufacturer originally increased the cost of its Model S and Model X models by $20,000 before slashing prices and deciding to absorb the difference. As a show of goodwill, China has subsequently delayed the further 25% tariffs on American cars and auto components. However, you may anticipate that China would attack the car sector with further penalties if tensions rise once again.

China is also at the center of the convoluted international automobile supply chain, so American makers spend more on Chinese-made components when those items are taxed more heavily. “Tariffs and quotas on cars and car components won’t boost the American economy or make American automakers and suppliers more competitive in the global market,” said Carla Bailo, CEO and President of the Center for Automotive Research. Even if a buyer purchases a car that was made in the United States, prices will increase because of the proportion of foreign components utilized in American manufacturing.

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Tech

Companies like NVIDIA Corp. (NVDA), Micron Technology (MU), and Intel Corp. (INTC), who rely on sales to China, are considered to be particularly susceptible in the event of a trade war. According to Quinn Bolton, senior semiconductor analyst at Needham, “Semiconductor vendors have quite high’ship-to’ revenue exposure to China,” in a note that was covered by CNBC. The semiconductor industry is more vulnerable to the escalation of the U.S.-China trade war than many other areas of technology because of its strong exposure to China.

Apple Inc. (AAPL) has so far been able to avoid duties on its phones made in China, but if Trump follows through on his promise to put tariffs on all imports from China, this will no longer be the case. Since it negatively impacted China’s weakening economy, the trade war has already had an effect on the iPhone maker’s profits.

The timing may have been accidental, but the situation with Chinese telecom giant Huawei was also made worse by trade disputes, worries over intellectual property, and issues with national security. Meng Wanzhou, the CFO of Huawei, was detained in Canada in December on suspicion of fraud in connection with the suspected use of a shell company to evade Iranian trade embargoes by the United States. The Justice Department has also accused Huawei of stealing trade secrets from T-Mobile, a partner company in the United States. When he told Reuters he would become involved in the issue if it meant a better trade agreement for the U.S., Trump did nothing to dispel concerns that Huawei was being used as a pawn in a political fight.

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China may decide to react with tariffs or use other means to financially harm American corporations if the competition for technical supremacy and the trade war intensify. China has other levers it could use, such as imposing new taxes and added regulation on U.S. companies, delaying deal approvals, or urging citizens to boycott American products, according to a Bloomberg report from last year. “China’s imports from the U.S. aren’t large enough to match Trump’s tariffs dollar for dollar, but the country has other levers it could use,” the report stated.

Agriculture

The fourth-largest market for American agricultural exports is China. According to the Office of the United States Trade Representative, the total value of agricultural exports to China in 2018 was $9.3 billion.

However, one important keyword has emerged as trade tensions have risen and fallen: soybeans. China has historically been the biggest consumer of American soybeans, purchasing $3.1 billion worth in 2018. Cotton ($924 million), hides and skins ($607 million), pig and pork products ($571 million), and coarse grains ($530 million) are other agricultural items that are sent to China in significant quantities.

Chinese authorities increased their tariff on American soybeans in 2018. Due to their large inventories of unsold goods, American soybean producers found themselves in a difficult situation. Given that soybeans have come to represent the U.S. and China’s trade dispute, China bought $180 million worth of soybeans from the U.S. in December as a gesture of good faith, although this was a small portion of the millions of dollars in sales that American farmers lost that year. Cotton is another trade-sensitive crop, and China now sources its supply from nations like India and Brazil.

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Farmers and allied sectors would undoubtedly experience pressure if China once again slowed or stopped buying American agricultural goods.

Is There an End in Sight?

It’s impossible to say if the standoff over trade between American and Chinese authorities has already reached its zenith. If so, things may go more smoothly for the industries of agriculture, technology, and automobiles. However, history has shown us that there is no such thing as a guarantee when it comes to trade wars. These sectors may be hammered particularly hard by fresh rounds of tariffs if the disagreement persists, and Chinese policymakers are aware of this.

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