US-China tensions could be the biggest risk to US stocks this year
A perspective from our Global Market Strategist
In the last several weeks, stocks have exhibited weakness and higher volatility. We are convinced that rising US-China tensions are behind this, and that the potential for a reignition of the US-China tariff war could be the single biggest risk to the US stock market this year.
Last week, the US Commerce Department announced it was amending an export rule in order to "strategically target Huawei's acquisition of semiconductors that are the direct product of certain US software and technology."1 In other words, the Trump administration is essentially blocking the shipment of semiconductors to Chinese tech company Huawei Technologies. US companies would need a special license approved by the Commerce Department in order to continue to sell semiconductors to Huawei. The Commerce Department’s rule has a 120-day grace period and impacts not only US chipmakers but a number of other semiconductor manufacturers around the world, including Taiwan Semiconductor.
This is very significant and is likely to slow Huawei’s 5G plans. It also has broader implications for technology going forward. This includes the possibility that China could retaliate for the Huawei restrictions by placing US companies on an “unreliable entity list.”
Other tensions rise to the surface and other flash points are:
- US intellectual property and data related to COVID-19 research
- Investment of federal retirement funds in China
- Military in southeast Asia
- US trade with China
1Source: US Commerce Department press release, May 15, 2020.