U.S. investors might be gripped by fear of a trade war with China well into the summer.
That could keep a lid on stock market gains, or at least on companies with the most at stake in the world’s most populous country. China, after all, has the second-largest economy and is the No. 2 trade partner with the U.S. after the European Union.
President Trump seems to be making good on his campaign promise to forge a better trade deal with China. He’s following his typical pattern by first staking out a harsh position — announcing tariffs on steel and aluminum imports March 1 — and thenallowing exemptions for the EU, Canada, Mexico and other countries. There are reports of negotiations in Washington between Treasury Secretary Steven Mnuchin, U.S. trade representative Robert Lighthizer and Liu He, China President Xi Jinping’s top economic adviser.
A list of planned tariffs against China has not been announced, and Lighthizer has said there will be a 60-day comment period before they are imposed. Meanwhile, negotiations will continue. So you can expect more uncertainty.
But this is about more than tariffs. Keep in mind that the government of China loves to play favorites — there’s a reason Alibaba Group Holding Inc. BABA, +2.59% Tencent Holdings Ltd. 0700, -0.63% Baidu Inc. BIDU, +0.04% and Ctrip.com International Ltd.CTRP, +0.97% — have little competition from U.S. companies.
Google (now Alphabet Inc. GOOG, +2.71% GOOGL, +3.18% ) shut its search engine in China in 2010. Amazon.com Inc. AMZN, +1.11% has a website in China and provides services there through affiliates but reports all non-U.S. sales together in its international segment, which accounted for $54.3 billion, or 31%, of total sales in 2017.
Tariffs are not the only way China could retaliate against U.S. companies if negotiations break down. China’s government could impose restrictions on trade or rules that would make some American companies follow Google’s path out of that massive market.
Companies with the most on the line
Starting withe the S&P 500 SPX, +1.38% financial researcher FactSet put together a special set of data to show which U.S. companies have the highest level of reported sales to China. A big problem with the data is that companies take different approaches to breaking down sales by geography. As we have seen, Amazon lumps all non-U.S. sales together. Then again, maybe if its business in China were to reach a certain size, it would want to provide more granular data.
Among the S&P 500, FactSet identified 62 U.S. companies that reported sales in the following relevant geographic areas:
- Greater China
- China and Taiwan
- China, including Hong Kong
- Asia-Pacific, Japan, China
So we are limited to companies that break out the China sales data and don’t have perfectly matching categories for “China.” But the size of the country’s economy make any figures in the above categories very important to investors.