Are the tech share prices vulnerable to US-China trade scenario?

About US-China trade war:

A trade war is an economic conflict wherein the nations involved create barriers for each other in the form of increased tariffs or impose tariffs to restrict the import of goods and services from one another. In this article, we are going to have a look at the ongoing trade war between the US and China.

The conflict was initiated by the US President Donald Trump when he increased tariffs and imposed other trade barriers for China in order to force China to stop the so-called “unfair” trade practices. The US claims that the trade practices followed by China are unfair and are resulting in increasing trade deficit, theft of Intellectual Property and forced transfer of American technology to China.

The major impacts of these trade barriers were experienced in farming, manufacturing as well as consumer-driven industries as a result of increased prices in the US. The impact of the trade war could not only be felt in the US but also in other parts of the world.

A glance at the progression of the US-China trade war:

• On 22 January 2018, President Donald Trump declared tariffs on solar panels and washing machines imported from China. During 2017, 8% of American solar panel imports were from China.
• America imported around 3% of its steel from China. President Trump on 1 March 2018, declared tariffs on import of steel and aluminium from all countries. On March 22, 2018, he also asked his trade representatives to propose tariffs on Chinese imports worth US$50 to US$60 billion.
• Against the tariff imposed by the US, on April 2, 2018, China also imposed tariffs on 128 products which it imports from the US.
• On 5 April 2018, Trump announced another round of tariffs on US $100 billion worth of Chinese imports.
• On 15 May 2018, Chinese vice premier and top economic advisor to the President of China had a discussion on trade tariffs on their visit to Washington. They met with Trump and agreed to reduce the US trade deficit by increasing imports from America.
• On 21 May 2018, President Trump announced that China agreed to buy agricultural products from the US. He also explained that purchases depended on the closure of a deal.
• Again, on 29 May 2019, US imposed 25% tariff on US$50 billion of Chinese goods.
• In August 2018, China imposed 25% tariffs on US$16 billion of imports from the US.
• In September 2018, the US imposed 10% tariff on US$200 billion worth of Chinese goods. On 18 September 2018, China imposed 10% tariffs on US$60 billion of imports from the US.
• Again, on 5 May 2019, Trump announced that the earlier tariff of 10% in US$200 billion of Chinese goods was increased by the US to 25%. The US also threatened tariffs on $267 worth import of Chinese goods in case China reacts. Trade war escalated between the two nations.
• On 5 August 2019, U.S. Department of Treasury declared that China was a Currency Manipulator. Again China, on the same date, ordered its state-owned enterprises to stop purchasing agricultural products from the US, totaling US$20 billion per year.
• By September 2019, China imposed 5% to 10% tariffs on 1/3rd of 5,078 US goods and remaining taxes are scheduled for December 2019. America has also imposed 15% tariff on Chinese import worth US$112 billion of products such as shoes, food and nappies.

Sectors Impacted due to US-China trade war

The US- China trade war has impacted almost all segments of the economy. Below is a list of the affected segments:

• Auto-parts industry
• Manufacturers:
• Farmers
• Semiconductors
• Consumer Electronics
• 5G Wireless Networks
• Bicycles
• Solar Equipment
• Apparel and Footwear
• Retailers
• Medical Devices

China is the largest exporter of goods in the world, and the US is the largest importer of goods in the world. These two countries act as strong pillars of the global economy. Any disturbance will not only impact these two nations, but it would impact other nations across the globe.

US and China Import-Export

Trade War Impact on the Technology Sector:

Technology sector forms an important constituent of the US economy. Most of the chip makers across the world rely on China for sales. This dependency of other countries on China for semiconductor chips has become the key risk in the trade war.

Big Technology players like Apple Inc. also depend on China for its assembled phones. At present, Apple Inc. is a little safe, but its position could also be impacted in case Trump imposes tariffs on all the products that are being imported from China. However, because of the US-China trade war, Apple Inc. has also experienced an impact on its earnings.

There is also pressure from Donald Trump on US-based companies operating in China to shift their manufacturing businesses from China to the US and create job opportunities for US citizens instead of the Chinese. This step, if taken, could significantly impact China’s economy.

Impact of Trade war on Asian Stocks:

Investors in Asia are anxious about the fallout of an impeachment enquiry initiated by the US law makers against President Donald Trump.

Trump has recently criticized trade practices followed by Beijing in his speech at the United Nations. As a result, Chinese shares slipped on 25 September 2019 and oil futures extended declines. The Chinese shares were already at risk, and the speech of Donald Trump could further exacerbate the outlook.

Benchmark S&P/ASX200 index and S&P/ASX200 (Information Technology) index Performance:

Benchmark S&P/ASX200 index on 25 September 2019 declined by 0.53% and closed at 6,713.3 by the end of day’s trading. Most of the sectors in Australia declined except S&P/ASX 200 Information Technology (Sector), S&P/ASX 200 Real Estate (Sector), S&P/ASX 200 Utilities (Sector) and S&P/ASX 200 Inverse Daily Index.

S&P/ASX 200 Information Technology (Sector) on 25 September 2019 was up by 1.06% and closed at 1,392.2 by the end of the trading session, indicating, that the sector has outperformed others.

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