A grim preview of a China trade war takes shape

BY MATT OTT

The Associated Press

In what could be a grim preview of what’s to come if the world’s two largest economies square off in a trade war, shares in multinational corporations were hammered Monday on both sides of the Pacific after a tweet from President Donald Trump.

That damage would almost certainly ripple outward and affect anyone who buys a refrigerator, a car, an iPhone, or anything else with a computer chip inside. Companies that import goods or parts from China may or may not pass on costs to consumers, but they usually act to offset rising costs somehow, including potential job cuts.

Goldman Sachs doubled the odds of auto tariffs are coming this year (to 20 percent), and lessened the odds it gives to a free trade agreement between the U.S., Canada and Mexico.

“The President’s willingness to risk a market disruption by threatening an unexpected tariff hike suggests that he might also be willing to risk the disruption that formally proposing auto tariffs or announcing the intent to withdraw from NAFTA might cause,” Goldman Sachs said in research published over the weekend.

The sector hit hardest by escalating trade tensions was technology, particularly companies that make computer chips. Micron Technology Inc., Advance Micro Devices Inc. and Applied Materials Inc. all slid 4 percent at the opening bell. Other chipmakers were not far behind.

According to data provider FactSet, 64.7 percent of Qualcomm’s revenue comes from China. Broadcom’s Chinese revenue is 48 percent of its total.

Heavy hitters in the tech sector like Apple Inc., Amazon.com and Alphabet all lost ground. Apple gets nearly one-fifth of its revenue from world’s second largest economy.

But every sector was under pressure Monday, from industrial to retail, and shares that were in retreat Monday tracked closely with its exposure to China.

Wynn Resorts, with a host of casinos and hotels in Macau, gets about 75 percent of its revenue from China, according to FactSet. Wynn shares tumbled 5 percent.

Chinese companies were not immune to the damage.

Alibaba shares skidded close to 5 percent and shares in Weibo — China’s version of Twitter — fell about 6 percent.

On Sunday, President Trump tweeted that he would raise import taxes on $200 billion in Chinese products to 25 percent from 10 percent as of Friday. That’s on top of a 25 percent duty on another $50 billion of Chinese imports. Beijing has imposed penalties on $110 billion of American goods.

Trump’s announcement caused financial markets to plunge early, starting in Asia. The Shanghai Composite index closed 5.6 percent lower and Hong Kong’s Hang Seng index sank 2.9 percent on Monday.