Talk of tariffs and protecting US companies’ IP rights has the market down in premarket trading. Hmmm, what could be the business impact of a trade war with China on the following companies that I own:
SHOP: not in China
ANET: 9.4% of revenue in Asia-Pacific
NVDA: China companies need chips for AI, gaming, autonomous cars, etc. Where else will they buy from? NVDA has pretty close to a monopoly position and AMD is also a US companies so any tariffs would likely just be passed on to the NVDA’s customers
NTNX: don’t have significant business in China
AYX: don’t have significant business in China
SQ: not in China
TLND: don’t have significant business in China
PSTG: 26% of revenue outside of the US so China is likely a very small part of revenue
NKTR: China is insignificant to NKTR
If China retaliates then the targets are likely to be things like US food exports, industrial equipment, and perhaps some high profile goods like iPhones. The “market” will likely drag down most companies’ stock prices but I don’t see any major direct impact on the businesses of the companies in the above list.
Chris
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I think I heard a CNBC talking head make the point that the China titans are pretty insulated from a trade war too, as they are largely servicing Chinese end users.
Not sure if I am missing a key business metric there, but if that is the case, then the BABA, BIDU, Tencent, etc… should also not be impacted.
That doesn’t mean the FUD won’t drive them lower anyway.
-Dreamer
From what I read the Chinese have already made it known that they will retaliate specifically with targeted tariffs on bourbon (McConnell), Harley’s (Ryan), soybeans and other agriculture products (Trump country) and other goods that affect specific Republican constituencies.
Please - this is not intended to be a political post, just passing along information about potential economic events that may be enacted if the US punishes China with tariffs.
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From what I read the Chinese have already made it known that they will retaliate specifically with targeted tariffs on bourbon (McConnell), Harley’s (Ryan), soybeans and other agriculture products (Trump country) and other goods that affect specific Republican constituencies.
China will no doubt be very cautious…because we can hurt them much more:
The deficit with China increased $28.2 billion to $375.2 billion in 2017. Exports increased $14.8 billion to $130.4 billion and imports increased $43.0 billion to $505.6 billion.
The US imports $500 BILLION from China vs exporting to China from US of $130 BILLION…and this while they rip off our IP, etc…no one wants a trade war…certainly not China.
But we need to take a stand now while our economy can withstand the heat…once China overtakes our economy not long from now…our leverage will be waning.
But IMO, this is not a major news item to fear in the stock market.
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NVDA is in a bullish ascending triangle.
SHOP is just on a roll.
ANET on a roll (what is that breakdown on 2/20?)
NTNX just had what I think Stockcharts calls a bullish breakout
etc etc
In the context of broader market signals showing some peaks, I’m not sure that right now is a great time to invest new cash… but these stocks are (so far) acting as though they are in a “protected class”. TWT.
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If China retaliates then the targets are likely to be things like US food exports, industrial equipment, and perhaps some high profile goods like iPhones. The “market” will likely drag down most companies’ stock prices but I don’t see any major direct impact on the businesses of the companies in the above list.
I agree with your analysis, as far as it goes. But there will be secondary effects.
For example a US company that is retaliated against loses revenue, then cuts back on the purchase of new computers, storage, etc.
I have no idea how to estimate any of this.
The other issue is that Mr. Market does not act rationally…when their is bad news it tends to bring down everyone at least to some extent.
Mike
If China retaliates in food, I don’t think it will be too hard on American producers. China has a lot of people to feed. If they don’t buy it from us, lets say they buy it from Australia. Well, unless Australia can triple their pork production overnight, whoever the Australians sold pork to, the US producers will be there to take that market.
Its not like the Chinese are not going to eat. And the richer they become, the more protein they will consume. I think their government is just saber rattling. And to a certain aspect I think ours is too.
All in all, I don’t expect much of a trade war. The Chinese have waited a long time to join in the riches of an advanced society, and they don’t want to give that up.
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The Chinese are smart, pragmatic and sensitive to US politics.
From what I’ve read, they are already quietly negotiating with US policy wonks about the tariffs. They are doing this in such a way to not embarrass DJT, they do not want him to lose face.
My guess is that they will negotiate a settlement and probably accept some not too onerous tariffs in the end. They may even respond to complaints about IP theft, though this is easier said than done. Not everything in China is under the central government’s control. Even those things which technically are controlled and regulated in practice might be less subject to the government’s rules than one might think. Just as we have people who ignore the law, so do the Chinese.
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