On May 10, the United States raised duties on $200 billion in Chinese imports from 10% to 25%, endangering a trade agreement between the two nations. The Chinese government has said that “appropriate actions” would be taken.
The S&P 500 and Dow Jones Industrial Average both fell more than 2% last week due to trade worries. The tech-heavy Nasdaq 100 was struck much worse, falling 3.3%. On Monday, futures showed a rocky start as fears about China’s reprisal escalated.
If the two nations engage in a full-fledged trade war, it is probable that certain sectors would be hurt worse than others. Below, we’ll look at some of the areas that may be most vulnerable to this influence.
The automobile sector in the United States is one of the most impacted by trade conflicts. In response for US tariffs, China raised duties on US-made autos entering the country from 15% to 40% last year. While Chinese customers mostly purchase automobiles made in China, U.S. manufacturers such as Tesla Inc. (TSLA) face the burden of trade tensions. After a fresh round of trade penalties, Tesla hiked the price of its Model S and Model X sedans by $20,000 in July, then lowered prices and opted to absorb the difference. As a goodwill gesture, China has deferred the further 25% tariffs on US autos and auto components. However, if tensions rise again, China is likely to retaliate against the vehicle sector with more tariffs.
China is also at the core of the complex global automotive supply chain, which means that when components from China are taxed at a higher rate, American manufacturers pay more on them. “Taxes and quotas on autos and automotive components would neither enhance the US economy or make US automakers and suppliers more competitive in the global market,” stated Carla Bailo, CEO and President of the Center for Automotive Research. “Prices will increase for US customers, even if they purchase a car made in the US, owing to the percentage of imported component content utilized in US manufacturing.”
Chipmakers and electronics companies that rely on China for sales, such as NVIDIA Corp. (NVDA), Micron Technology (MU), and Intel Corp. (INTC), are considered as particularly susceptible in the event of a trade war. “Semiconductor suppliers have quite high’ship-to’ revenue exposure to China,” Needham senior semiconductor analyst Quinn Bolton wrote in a note quoted by CNBC. “Because of its strong exposure to China, the semiconductor industry is more vulnerable to an escalation in the US-China trade war than many other parts of technology.”
So far, Apple Inc. (AAPL) has avoided duties on its China-assembled phones, but that will change if Trump levies tariffs on all Chinese imports, as he has threatened. Because of the deteriorating Chinese economy, the trade war has already had an effect on the iPhone maker’s profits.
Trade tensions, as well as worries over intellectual property and national security, aggravated the issue with Chinese telecoms giant Huawei. Meng Wanzhou, Huawei’s CFO, was detained in Canada in December on allegations of fraud connected to the suspected use of a shell company to circumvent US sanctions against Iran. The Justice Department also accused Huawei of stealing trade secrets from T-Mobile, its American partner. Huawei is a vital firm in China, and Trump did nothing to dispel concerns that it was being used as a pawn in a political game when he told Reuters that he might interfere in the case if it meant a better trade agreement for the US.
If the race for technical superiority and the trade conflict intensify, China may opt to react with tariffs or harm American businesses via other means. “China’s imports from the United States aren’t large enough to match Trump’s tariffs dollar for dollar, but the country has other levers it could use, such as imposing new taxes and regulations on American companies, slowing deal approvals, or encouraging citizens to boycott American products,” according to a Bloomberg report from last year.
The United States’ fourth biggest agricultural export market is China. According to the Office of the United States Trade Representative, agricultural product exports to China totalled $9.3 billion in 2018.
However, as trade tensions have ebbed and flowed, one crucial watchword has been soybeans. China has traditionally been the major buyer of US soybeans, purchasing $3.1 billion in 2018. Cotton ($924 million), hides and skins ($607 million), pigs & pork products ($571 million), and coarse grains ($530 million) are among the other agricultural items shipped to China in large quantities.
Chinese authorities slapped an additional tax on US soybeans in 2018. American soybean growers found themselves in a predicament, with massive inventories of crop they couldn’t sell. Given that soybeans have become a symbol of the trade war between the United States and China, the latter made a show of good faith by purchasing $180 million in soybeans from the United States in December, but this was a fraction of the multi-million dollar loss in sales experienced by American farmers that year. Cotton is another trade-sensitive crop, with China resorting to nations such as India and Brazil to supply its need.
Farmers and allied sectors would undoubtedly feel the pinch if China slows or stops purchasing US agricultural goods in the future.
Is There an End in Sight?
There’s no knowing if we’ve already seen the peak heights of hostility between US and Chinese leaders in the trade war. If this is the case, the automotive, technology, and agricultural sectors may have a better path ahead of them. On the other hand, history has shown us that nothing is definite when it comes to trade battles. If the disagreement continues, these sectors may be impacted the most by subsequent rounds of tariffs – and Chinese authorities are well aware of this.
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