The U.S.-China trade tensions escalated on April 11 as China announced on Friday that it will raise tariffs on imports of U.S. goods to 125%, up from the previously planned 84%. This decision is a direct response to President Trump's aggressive tariff strategy and marks a significant escalation in the ongoing US-China trade war.
The White House declared on Thursday that the actual U.S. tariff rate on Chinese goodsnow stands at145%, not the 125% previously cited by President Trump. The new Chinese tariffs will take effect on April 12, 2025, intensifying tensions that have already shaken global markets and investor confidence.
Further Adverse Impact on Stock Market
The announcement will likely roil U.S. stocks further. Treasury Secretary Scott Bessent stated that he expects the United States to reach a place of "great certainty" after the current 90-day pause on certain Liberation Day tariffs. However, the Trump administration's this week's decision to pause tariffs for other partners — but not for China — indicates the possibility of a direct US-China trade war (read: 5 Leveraged ETFs That Skyrocketed on 90-Day Tariff Pause).
ETF Areas Under Threat
Against this backdrop, it would be intriguing to note the sector ETFs or areas that are now in a vulnerable state given the escalation of the trade war. The following sectors and areas have considerable business exposure to China and are thus more susceptible to the trade war.
Semiconductor
Semiconductor and semiconductor equipment companies have a solid revenue exposure to China and are thus exposed to maximum risks on rising trade tensions. Chipmaker Qualcomm (QCOM) has about 50% revenue exposure to China. Apart from these, some other tech and semiconductor companies, which have sales exposure to China in the range of 15% to 30%, include the likes of Intel INTC, Micron Technology MU and Applied Materials (AMAT).
This clearly explains why the mood could be somber in the semiconductor space. So, VanEck Vectors Semiconductor ETF SMH may see troubles ahead. Inverse semiconductor ETF Direxion Daily Semiconductor Bear 3X Shares SOXS added 23% on April 10.
Apple-Heavy ETFs
Tech companies that have extensive trade relations with China would be at high risk of falling prey to the trade war. Apple AAPL is specifically under pressure. A substantial portion of iPhones are assembled in China, with estimates ranging from 70% to 90%. Evercore ISI estimates that 55% of Apple’s Mac products and 80% of iPads are assembled in China, as quoted on CNBC.
Apple-heavy ETF Technology Select Sector SPDR Fund XLK should be watched closely. Direxion Daily AAPL Bear 1X Shares AAPD gained 4.3% on April 10.
Casino
U.S. casino companies have extensive exposure to China. While Wynn Resorts has 73% focus and MGM Resorts takes about 23% of the exposure. Las Vegas Sands owns properties in Macau. So, the fund VanEck Vectors Gaming ETF BJK comes under the spotlight. The ETF BJK has a Zacks Rank #4 (Sell).
Retail
With a large share of consumer goods from home appliances to toys sourced from China and Mexico, major retailers like Walmart WMT, Target TGT, Best Buy BBY and Costco COST are expected to see higher prices as a result of the new tariffs.
JPMorgan estimates that more than 80% of toys sold in the United States are made in China. Retailers are also vulnerable to higher consumer electronics costs.SPDR S&P Retail ETF XRT and VanEck Vectors Retail ETF RTH, thus, will likely be hurt.
Also, as tariff tensions heat up, inflation in the U.S. economy should perk up. Along with most market watchers, we too believe that companies will try to pass on some cost escalation to consumers. Moreover, higher inflation and chances of a less-dovish Fed would give a boost to bond yields. This, in turn, might push up consumers’ borrowing costs and hurt iShares U.S. Consumer Services ETF IYC. Inverse consumer discretionary ETF ProShares UltraShort Consumer Discretionary SCC advanced 6.8% on April 10.
Auto
U.S. auto companies earn considerable revenues from China. With Beijing slamming tariffs on U.S. auto imports, First Trust NASDAQ Global Auto Index Fund CARZ would come under pressure. For instance, Tesla TSLA suspended new orders for its U.S.-made Model S and Model X vehicles in China amid escalating tariffs. Max Auto Industry -3X Inverse Leveraged ETN CARD tacked on 13.4% gains on Apil 10.
Shipping
Lastly, as global trade faces significant risks and the theme of localization gains momentum, shipping stocks are more likely to underperform. US Global Sea to Sky Cargo ETF SEA has lost 11.9% over the past month compared with 5.6% losses in SPDR S&P 500 ETF Trust SPY.
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