President Trump has imposed a new tariff of 10% on $200 billion worth of Chinese goods starting next week. The tariff will be increased to 25% effective Jan 1. The latest move has escalated tensions between the two largest economies in the world though both sides are slated to meet later this month to ease trade tensions (read more: Trump's Tariff Threat Put Trade Talks at Risk: ETFs to Buy ).
The administration held a seven-week comment period for the goods to be included in $200 billion. It removed nearly 300 product lines and some individual products from the proposed list. The items dropped include smart watches, Bluetooth devices, bike helmets, plastic gloves, high chairs, baby car seats, play pens, rare earth metals and certain chemicals.
The new tariffs will be applicable for almost 6,000 items, targeting consumer goods such as tires, windshield wipers, baseball gloves, bicycles, snakeskin pants, backpacks, trombone cases, refrigerators, wooden furniture, handbags, and textiles, marking the biggest round of U.S. tariffs so far. Several food items from frozen cuts of meat to almost all types of fish from smoked mackerel to scallops and soybeans, as well as various types of fruit, cereal and rice are also included in the list. Products that help computer networks operate, such as routers and Internet-connected devices, have also been targeted.
China has warned of retaliation with expected tariffs on $60 billion American goods. Trump has further threatened to add third round of tariffs on another $267 billion of Chinese imports on a short notice if China hits back. This would raise the total tariff to $517 billion in goods, which would mean levying duties on nearly everything China exports to the United States. The latest tariff comes on top of the $50 billion that is already in place with 25% duty. China has also hit back with tariffs of equivalent amount of U.S. exports.
With the ramp up of American tariffs, the Chinese slowdown is expected to worsen and could hamper global growth. The United States will also not be impact-free. Retailers, manufacturers and many other American businesses have warned that the new tariffs could disrupt their businesses, thereby hurting their revenues, profits, hiring and growth. Higher tariffs will also increase the prices of many American products, resulting in lower consumer spending (read more: Tariffs Likely to Dent US Earnings: ETFs in Focus ).
For example, the price of laundry equipment shot up 16% between February and May after Trump announced tariffs on washing machines toward the start of 2018, per an analysis by Mark Perry - an economics professor at the Flint campus of the University of Michigan and a scholar at the American Enterprise Institute.
Several ETFs could be hit by the latest round of tariffs and will be in focus in the weeks ahead:
iShares U.S. Consumer Goods ETF IYK
This fund offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods. It holds a basket of 107 securities with key holdings in food beverage tobacco, which accounts for 46.5% of the assets, followed by household & personal product (18.5%), consumer durables (16.3%) and autos & components (10%). The product has AUM of $545.7 million and charges 43 bps in annual fees. It has a Zacks Rank #4 (Sell) with a Medium risk outlook (read: Coca-Cola to Acquire Costa Coffee: Consumer Staples ETFs in Focus ).
SPDR S&P Retail ETF XRT
XRT tracks the S&P Retail Select Industry Index and provides exposure to the retail segment. It holds 89 stocks in its basket and has significant exposure to apparel retail (22.5%), automotive retail (17%), internet & direct marketing retail (15.3%) and specialty stores (15.1%). The product is the most popular and actively traded ETF in the retail space with AUM of about $839.9 million. It charges 35 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: August Wage Growth Hits 9-Year High: ETFs & Stocks to Surge ).
VanEck Vectors Semiconductor ETF SMH
This fund targets the semiconductor production and equipment segment of the broad technology sector. It tracks the MVIS US Listed Semiconductor 25 Index, holding 25 stocks in its basket. The product has managed assets worth $1.1 billion and charges 35 bps in annual fees and expenses. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook.
Invesco Global Agriculture ETF PAGG
This product offers exposure to the largest, most liquid, globally traded companies involved in agriculture and farming-related activities. It follows the NASDAQ OMX Global Agriculture Index, holding 50 stocks in its basket. The fund has accumulated $20.5 million in its asset base and charges 77 bps in annual fees (read: Trade-Sensitive Sector ETFs & Stocks to Watch on Talk Hopes ).
Invesco Dynamic Food & Beverage ETF PBJ
This ETF follows the Dynamic Food & Beverage Intellidex Index and offers exposure to 30 US food and beverage companies. The fund has AUM of $77.1 million and charges 63 bps in annual fees. It has a Zacks Rank #4 with a Medium risk outlook.
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