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China's $50B Tariff Backlash Puts These ETF Areas in Focus

Sanghamitra Saha
Best Buy (BBY) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Trade war fears between the United States and China seem to be at its optimum level. President Trump first announced a pair of tariffs on steel and aluminum and then imposed about $50 billion in import duties on Chinese goods. In retaliation, China first announced $3 billion worth of tariffs on U.S. imports and most recently declared that it will levy tariffs on more than 100 American products, with a total trading value of over $50 billion.

According to a new structure announced this week, mainly Chinese machinery, technology and agricultural equipment are being subjected to a new 25% tariff. The Chinese government did not waste time to fire back and raised the limit of import tariffs to match the $50 billion figure.

The reason behind this trade war is that China registered a $375-billion trade surplus with the United States in 2017 and the Trump administration is persistently forcing China to reduce that enormous amount by $100 billion. No wonder, recent moves would scale up global trade tensions.

A full-blown trade war will however depend on whether negotiations between China and the United States fail. The two parties have offered each other time to rethink the decision as the American tariffs have a 60-day public comment period before enactment and China won’t levy its charges before the American ones take effect. Still, we can take a look at the ETFs that will be in focus in light of the likely China tariffs.

Agriculture

Agricultural products like yellow and black soybean faced a retaliatory tariff. Notably, China is likely to import 64% of global soybean this year. The two largest exporters of soybeans, Brazil and the United States, are likely to make up about 85% of total global import demand.

As per a document from 2013, soybeans are the key U.S. exports to China. China purchases about half of the U.S. soybean and the country is the second-largest buyer of American cotton.

Needless to say, funds like Teucrium Soybean Fund SOYB and Teucrium Corn ETF CORN will be watched closely now. SOYB was down more than 1.8% on Apr 4 while CORN lost about 1.9% and iPath Pure Beta Grains ETN WEET shed about 3% on Apr 4. Overall, PowerShares DB Agriculture ETF DBA was down about 0.3% on Apr 4.iPath Pure Beta Cotton ETN CTNN should also be under the spotlight.

Civilian Aircraft

China plans to levy tariffs on Aircraft and other aircraft with an empty weight between 15 to 45 tons. Per a document, civilian aircraft comes second on the top-exporting list. Notably, China is a key market for Boeing Co BA (down 1% on Apr 4) where it serves as the largest exporter of America. Last September, the company said that it expects China to spend about $1.1 trillion over the next 20 years, purchasing more than 7,200 airplanes. So, aerospace ETFs likeiShares U.S. Aerospace & Defense ETF ITA could bear the brunt.

Auto

SUVs, passenger cars and other vehicles have also been threatened with tariffs. A number of new passenger vehicles and light trucks that United States exported to China from 2011 to 2017 grew about 113%. One in 10 cars bought in China is likely to be a General Motors GM despite China levying tariffs between 21% and 30% on American auto and the fact that foreign subsidiaries need to operate as 50-50 joint ventures with Chinese companies in the Mainland. So, a deep impact on the car industry could be seen, putting First Trust NASDAQ Global Auto Index Fund CARZ under the spotlight.

Materials

Chemical products focused Materials Select Sector SPDR Fund XLB will also be in focus. The fund puts about 72% weight on the chemical industry followed by 12.94% focus on containers & packaging (read: Watch These ETFs as Trade War Risks Rise).

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The Boeing Company (BA) : Free Stock Analysis Report
 
General Motors Company (GM) : Free Stock Analysis Report
 
SPDR-MATLS SELS (XLB): ETF Research Reports
 
ISHARS-US AEROS (ITA): ETF Research Reports
 
PWRSH-DB AGRIC (DBA): ETF Research Reports
 
TEUCRM-SOYBEAN (SOYB): ETF Research Reports
 
FT-NDQ GL AUTO (CARZ): ETF Research Reports
 
TEUCRM-CORN FD (CORN): ETF Research Reports
 
IPATH-PB COTTON (CTNN): ETF Research Reports
 
IPATH-PB GRAINS (WEET): ETF Research Reports
 
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