Here’s How China Can Crush US Tech Firms If Trade War Escalates

Business
Apple

President Trump rattled stocks on Wednesday after the Commerce Department rolled out its list of Chinese products, representing $200 billion in imports, that could soon face 10% tariffs Tuesday night – the latest sign that the escalating trade war between the US and its largest economic rival is still heating up. And, echoing recent comments from Morgan Stanley, on Wednesday morning, Bloomberg pointed out that China could soon opt to “trip up” US tech firms operating in the region, something that MS analysts say could have serious repercussions for US equities which have yet to be adequately priced in by the market, and which earned the tech sector a downgrade to underweight.

Since China imports far fewer goods from the US than the US imports from China, the country has threatened to embrace other tactics as part of its retaliation, like imposing new taxes or adding regulation on US companies, slowing deal approvals, or encouraging citizens to boycott American products, the WSJ reported today.

Some companies that export goods to China have already reported unexplained holdups at customs or in other areas. And as Bloomberg reported Wednesday, US tech companies – which have led US the US equity market all year as the bulk of the S&P 500’s gains have been on the back of a handful of megacap tech stocks – are particularly vulnerable to the Communist Party’s wrath. Which is one reason why Morgan Stanley recently recommended that its clients stay long volatility into the summer. As Michael Zezas, Chief US Public Policy & Municipal Strategist at Morgan Stanley wrote earlier this month: “In equities, our team thinks that US tech is vulnerable as a sector where pricing has been insensitive to trade risks so far.”

As a reminder, it is tech stocks that have been the pillar upon which the market’s 2018 gains were erected, with just the 5 biggest stocks responsible for nearly all the S&P’s upside in 2018.

Out of all US tech companies, Apple is perhaps most vulnerable to China’s retaliation. While President Trump has reportedly promised Apple CEO Tim Cook that iPhones will be spared from the Trump administration’s tariffs it’s likely only a matter of time before Xi Jinping becomes frustrated with Tim Cook’s ineffectual attempts to act as the tech community’s “chief diplomat” and decides to crack down on the world’s …read more

Source:: Zerohedge.com

      

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