A phase one trade deal was finally reached last December between the U.S. and China, but nearly 2 years of failures have cost many companies dearly.
Jan. 4, 2020
The U.S. & China have partially reached a deal to temporarily ease down the so-called trade war which started back in 2018. This deal is called the “Phase One” of the trade deal, phase two will follow up in 2020 as leaders from both countries continue to negotiate. The phase one deal included reducing U.S. tariffs on some of the Chinese goods in exchange for which the Chinese will buy some agricultural produce.
Here are some of the winners and losers from this deal.
Winners
US Retailers like Walmart (NYSE: WMT), Target (NYSE: TGT), Macy’s (NYSE: M), Best Buy (NYSE: BBY) and Home Depot (NYSE: HD), etc. source most of their products from China. Products include clothing, footwear, toys, etc. are some of the most imported ones. Earlier this month President Donald Trump announced that tariffs would be levied on these imports of roughly $156 billion from China, these were planned to go into effect on the 15th December. The US will not proceed with these tariffs as negotiated in the phase one deal. These tariffs would have brought immense pressure on these retailers as they are already facing margin contraction from the E-commerce boom.
Mr. Trump also had also planned to put tariffs on goods like cellphones, laptops and other popular tech products which are mostly made in China in the December 15 tariffs. This brought in joy for Apple (NASDAQ: AAPL) as it closely dodged tariffs on the iPhone, its stock was up nearly 1% on the same day.
China is the world’s fastest-growing economy and so is the banking & financial services sector of the country. Before this deal, the U.S. banks had faced a lot of restrictions as they needed to have a local Chinese partner. This deal allows improved access to the Chinese financial services markets for U.S. companies in banking, insurance, securities & credit rating services. This is a big opportunity for banks like JP Morgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), etc. as they can own and operate freely to compete against Chinese firms.
Tesla will also produce cars at its Shanghai factory which will be free of tariffs.
China has committed to buy approximately $40 billion of US agricultural produce every year. This is a big win for U.S. soybean producers as they have previously faced a big downfall in imports due to 25% tariffs which were introduced in July 2018.
Losers
It is a bit of mixed news for the energy sector. The 5% tariffs on U.S. crude weren’t removed, but the same was removed on Propane which was set to take effect from December 1. Tariffs earlier imposed on Liquified Natural Gas (LNG), Methanol, Ethylene Glycol (MEG) were not affected by the phase one deal. This is bad news for U.S. energy giants like Cheniere Energy (NYSE: LNG) and Exxon Mobil Corp (NYSE: XOM) etc. as China is still the biggest consumer of energy in the world.
Protecting the Intellectual Property of American companies was one of the main reasons President Trump started the trade war. No particular deal was made for the protection of American IP in this phase one deal. Semiconductor companies like Qualcomm (NASDAQ: QCOM), NVIDIA (NASDAQ: NVDA), Intel (NASDAQ: INTC), AMD (NASDAQ: AMD), etc. holds a large portfolio of patents, copyrights, and other IP.
American leaders and corporates have accused Chinese companies of stealing this IP, and although they have taken numerous measures to protect these companies from selling/operating in China, it has been a hard time for semiconductor companies as a big portion of their revenue comes from China. Since the deal is not made on the technology front, they’ll continue to face these challenges, lose revenue and might be still exposed to a future possibility of IP theft.
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