China’s trade reprisals slam US industrials

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.

Metal Benders

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.

Takeaway

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.

This material is from Interactive Advisors Asset Management and is being posted with Interactive Advisor Asset Management’s permission. The views expressed in this material are solely those of the author and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.