The US-China trade war continues to intensify. This week, the Trump administration slapped new tariffs of 10% on $200 billion of Chinese imports.
Beijing fired back with new taxes of 5% to 10% on $60 billion of US goods, everything from auto parts and clothing to meat and chemicals.
So far, in my view, the Chinese stock market has felt the brunt of the trade conflict. The Shanghai Stock Exchange Composite Index is down 15% on the year through Sept. 25, while both the S&P 500 Index (up 9%) and Dow Jones Industrial Average (up 7.4%) are both in the green for 2018.
As of Sept. 25, the tech-laden Nasdaq is up a smart 15% on the year.
Yet in my opinion US investors have scarcely emerged unscathed from the trade rumble between the world’s two biggest economies. As the Wall Street Journal points out:
“The trade fight has weighed particularly hard on shares of industrials and materials companies, which account for about one-fifth of the 80 stocks in the S&P 500 that have tumbled at least 20% from their 52-week highs—the common definition of a bear market.”
Some big-name manufacturers such as Harley-Davidson (HOG), Whirlpool (WHR), Caterpillar (CAT) and Stanley Black & Decker (SWK) have seen their shares fall more than 20%, in part due to the trade war.
The shares of Cummins (CMI), Ford (F) and Goodyear Tire & Rubber (GT) have also taken a thrashing.
In my view, the Trump administration is right to focus on the disputed trade practices that divide the US and China. They’re real and need to be dealt with.
However, I also think that slapping tariffs on traded goods is a pretty blunt instrument that can often cause unintended negative consequences.
And I think that’s a lesson already being learned by US investors with big exposures to bellwether manufacturing stocks.
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