Upping the Trade Ante: The U.S. Increases Tariffs on China

May 24, 2019 | Samantha T. Grant, CFA, CAIA, Assistant Vice President

On May 10th, the United States increased tariffs from 10% to 25% on $200 billion of Chinese imports after trade talks broke down. The increase was initially planned for January 1, 2019, but the U.S. delayed the tariffs in order to see if a resolution could be reached by May 1st. China retaliated on May 13th with an increase in tariffs on $60 billion on American goods, effective June 1st.

Since the announcement, U.S. and Chinese equity markets have been down 0.9% and 6.1% through May 17th. In particular, there are a number of companies and industries caught in trade crosshairs:

  • Apple: China accounts for almost 20% of Apple’s revenue and hundreds of its suppliers are located in China. Concurrently, Chinese consumers have been moving away from more expensive iPhones towards cheaper Chinese brands like Huawei.
  • Semiconductors: Intellectual property disputes were key to the breakdown in trade negotiations. Many semiconductors are made in China and are used in mobile devices. An increase in tariffs could raise prices for consumers, which may lead to higher inventories and lower investment in innovation.
  • Materials: China owns 90% of rare earth supplies, which are used in advanced technologies. These materials may be subject to future tariffs.

Fortunately, the United States has taken some steps to lessen the blow of tariffs. First, the Trump administration delayed making a final decision on whether to impose tariffs on auto imports from the European Union and Japan. Second, the administration reached a deal with Canada and Mexico to end U.S. and retaliatory tariffs on steel and aluminum. This removes a major roadblock in the possible passage of the USMCA trade agreement, which would replace NAFTA, by Congress. However, our trade with China is greater than our trade with Canada or Mexico.

Recently, consumer confidence hit a 15-year high, but the survey was taken before the May 8th trade announcement. While the Street is crossing its fingers that a deal can be reached by the G20 summit in late June, we are more concerned with how a prolonged dispute can affect business investment and eventually, consumer confidence.

Print PDF > Upping the Trade Ante: The U.S. Increases Tariffs on China

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Samantha T. Grant, CFA, CAIA
Assistant Vice President

Get to Know Samantha

Related Content

05.28.2020

The Confluence of Small-Cap Stocks and the Economy

Small businesses are often thought of as the backbone of the U.S. economy. Long before the coronavirus, the Russell 2000…

05.22.2020

Brighter Lights at the End of a Shorter Tunnel

Biotech company Moderna’s announcement earlier this week that its coronavirus vaccine successfully helped healthy adults produce antibodies against COVID-19 sent…

05.20.2020

There’s FAAMG and Everyone Else

Since the S&P 500 bottomed on March 23rd, the stock market has taken off while economic fundamentals have worsened. As…

05.14.2020

It’s Not Bad News for All Energy Stocks

With the steady stream of negative economic data, record-shattering unemployment figures, and ballooning government deficits, it has been hard to…

05.11.2020

Is It Game Over for Value Stocks?

Over the last ten years, growth stocks have outperformed value stocks by an average 5.3% per year, and the differential…

05.08.2020

Declining Jobless Claims When Unemployment is 14.7%?

New jobless claims fell from a peak of 6.9 million for the week ending March 27th to 3.2 million for…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >