Trade War Heats Up Again: ETFs & Stocks In Focus

Trade disputes between the two biggest economies escalated after the United States and China engaged in a tariff war. In his pledge to punish the alleged theft of U.S. intellectual property, Trump finally unveiled the list of $50 billion worth of Chinese goods targeted for 25% tariff to be applied in two phases.

The first round of tariff will apply to 818 imported Chinese goods worth $34 billion, including auto, electric cars, aerospace, communications tech, new materials and robotics and will go into effect on Jul 6. The second wave of 284 goods worth another $16 billion is under review and will go into effect after a public comment. This includes semiconductors, and a broad range of electronics and plastics related to China's Made in China 2025 strategic plan, aiming to dominate the emerging high-technology industries that will drive future economic growth for China (read: Trump, Tariff & Geopolitics Lead May: 10 Top ETF Stories).

In retaliation, the second-largest country announced that it will slap a 25% tariff on 659 American goods for a similar amount. The list of goods was more than six-fold from an earlier version released in April. Penalties on 545 American goods worth $34 billion will be effective Jul 6 and targets agricultural products, autos and seafood. The 545 products include lobsters, soybeans, electric cars, orange juice, whiskey, salmon and cigars, according to the Ministry of Finance. Notably, most items are food and other farm goods hitting American farmers the most.

The new tariffs will hit hard the American seafood industry. The United States imported more than $2.7 billion in Chinese seafood, and exported more than $1.3 billion to China last year. In particular, the Maine lobster industry will be hurt the most as it was worth more than $430 million at the docks last year. Chinese imports of American lobster have grown exponentially in recent years, rising to $142.4 million last year from $108.3 million in 2016. Then, Salmon is the biggest seafood item being exported to China and accounted for $318.5 million of the total seafood last year.

The implementation date for the remaining 114 products will be announced later and will include chemical products, medical equipment and energy products.

As Trump threatened to pursue an additional tariff if China retaliates, he is seeking for another tariff on $100 billion in Chinese goods, according to Reuters. The intensifying tariff talks could trigger a full-fledged trade war between the world's two largest economies and hit hard various corners of the economy. Below we have highlighted ETFs & stocks from those areas:

Farm Belt

According to the U.S. Department of Agriculture, the United States exports about $14 billion worth of soybeans to China. The duties on American exports will hurt these shipments, leading to a negative impact on the top line of soybean exporters like Archer Daniels Midland Company ADM. DowDuPont’s DWDP agriculture unit is expected to be hurt by price declines in soybeans. ADM gained 1.7% on Friday while DWDP lost 0.9%.

U.S. soybean November futures fell as much as 1.9% to a one-year low, pushing Teucrium Soybean ETF SOYB down by 2.1% on Friday (read: China Tariffs Target US Farm Belt: Stocks and ETFs in Focus).

Farming equipment maker Deere & Co. DE could be among the biggest losers as the proposed China tariff on agricultural products would reduce demand for the related machines. Bunge Ltd. BG, an integrated global agribusiness and food company spanning the farm-to-consumer food chain, could also lose from the lower demand for farm products. Deere and Bunge fell 0.9% and 0.7%, respectively on tariff talks.

Aerospace

Boeing BA would be hit hard from the proposed Chinese tariff, as it is the top U.S. exporter to China and will likely buy about $1 trillion worth of its aircraft over the next 20 years. Shares of BA shed 1.2% on the day. iShares US Aerospace & Defense ETF ITA, which offers exposure to the aerospace and defense sector of the U.S. equity market, dropped 0.4%.

Auto

General Motors GM would be the biggest loser as China has been the largest retail market for six consecutive years as the automaker sold four million vehicles in 2017 for the first time ever. The stocks added 0.8% following tariff talks. Meanwhile, Tesla TSLA) also seems to be the biggest loser as China has threatened more import tariff on electric cars. Tesla also rose 0.1% on the day. First Trust NASDAQ Global Auto ETF CARZ), which offers nearly one-fourth exposure to the American auto sector, dropped 1.1% (read: Trade War Tensions Flare Up: Must-Watch ETFs & Stocks).

Semiconductors

Trump’s import tariff for Chinese products will compel American semiconductor companies to pay duties on their own products. This is because chips are manufactured in the United States but are shipped to the Asian nation for assembly, testing and packaging due to its favorable labor costs, according to the Semiconductor Industry Association. Some of these chip stocks include Intel INTC, Micron MU and Texas Instruments TXN. INTC and MU were down 0.8% and 1.6%, respectively, while TXN gained 1% at the close on Friday. iShares PHLX Semiconductor ETF SOXX was also down 0.09% on the day.

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Avis Budget Group, Inc. (CAR): Free Stock Analysis Report
 
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ISHARS-PHLX SEM (SOXX): ETF Research Reports
 
ISHARS-US AEROS (ITA): ETF Research Reports
 
TEUCRM-SOYBEAN (SOYB): ETF Research Reports
 
Deere & Company (DE): Free Stock Analysis Report
 
Intel Corporation (INTC): Free Stock Analysis Report
 
Texas Instruments Incorporated (TXN): Free Stock Analysis Report
 
Micron Technology, Inc. (MU): Free Stock Analysis Report
 
Archer Daniels Midland Company (ADM): Free Stock Analysis Report
 
Bunge Limited (BG): Free Stock Analysis Report
 
Dow Chemical Company (The) (DWDP): Free Stock Analysis Report
 
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