Stocks of tech and bank companies plummet as China's retaliation fuels fears of a wider trade war

U.S. tech giants, banks, and oil majors all fell on Friday, after China responded to Trump's new tariffs by imposing steep duties. This heightened fears of an economic recession around the world.

China has imposed additional duties of 34 percent on U.S. products, which will take effect on April 10. China also announced a ban on the export of certain rare-earths, and added a number of U.S. companies to its "unreliable entity" list. This allows Beijing to take punitive measures.

On Wednesday, U.S. president Donald Trump announced 34% tariffs on imports coming from China and a 10% base tariff on the majority of goods entering the U.S. This triggered a massive meltdown in markets on Thursday.

Investors have already expressed concern about possible disruptions in supply chains, price increases and destruction of demand for everything from smartphones and cars to sneakers.

Tesla and Apple, two companies that have a high exposure to China, saw their shares fall by 8% and 4% respectively. Both companies produce locally in China but duties on U.S. imported parts could force them to increase prices.

"Several tech firms have established local supply chain in China." The majority of companies already source their components from China, so disruptions are likely to be manageable. However, we expect higher prices for parts and components that are not sourced from China," Nishant Udupa said, practice director at Everest Group.

Tesla is already engaged in a brutal price war against local Chinese competitors. Raising prices would further pressure the demand.

Apple's sales of smartphones in China have been falling for a while, due to the growing competition from cheaper products. The prospect of high import duties will likely further erode sales, said Susannah Streeter of Hargreaves-Lansdown, who is the head of money and market.

Alphabet, Microsoft, and Meta are among the other Big Tech companies that have seen their shares fall between 2% to 4%.

Russ Mould is an investment director with AJ Bell. He said that "Big Tech stocks were not immune to growth concerns in 2022, and they're struggling again for the same reasons, but from a higher starting point this time in terms of valuation."

The price of crude oil, already under pressure due to an increase in OPEC+ oil production expected in May, has risen further.

Exxon and Chevron, two oil majors, both fell by 3.5%. SLB, the top oilfield services company, dropped 5.7%. Marathon Petroleum, the largest U.S. refining company by volume, also fell 5.8%. DuPont, a chemical company, fell 11%.

"Trade war fears are rising, and oil demand is expected to be hit hard," said Tamas Variga, an analyst at PVM.

The chip industry is also expected to be hit by the same challenges, despite the fact that U.S. electronic equipment exports to China are much lower.

Trading Economics, a provider of economic data, estimates that the U.S. will export more than $15 billion in electrical and electronic equipment worth to China by 2024. The majority of this value is attributed to integrated circuits (ICs), transistors, and other semiconductor devices. Comparatively, the US imported electronic equipment worth more than $127 Billion from China in 2013.

"Semiconductors are going to feel more impact... We are already seeing a Chinese ecosystem develop, which has direct alternatives for all major US semiconductor firms. Udupa stated that this trend will likely accelerate.

Following the countermeasures, shares of banks continued to decline. Fears have been affecting the industry that a dispute over trade could reduce consumer confidence, lower spending, weaken demand for loans and increase fees charged by advisors.

JPMorgan Chase is the largest U.S. Bank by assets. Its stock dropped 5.6%. Wall Street giants Goldman Sachs, Morgan Stanley and others each dropped 7%.

GE Healthcare stock fell nearly 16% after China announced export controls for a rare-earth material used in MRI scanners. China's announcement that it would be conducting an anti-dumping probe into certain medical CT tubes imported from the U.S. or India, added to the concerns.

Ford and General Motors shares in Detroit were down by about 2% and 4 %, respectively.

The automakers rely on a global supply chain that is complex. GM and Ford rely on China to be a major growth market for electric vehicles.

Caterpillar and Deere, two heavy machinery manufacturers, fell by 6.5% and 5.4% respectively on worries about demand in one of their biggest overseas markets.

Both companies are exposed to China. China is a major purchaser of construction and agriculture equipment, and also a player in the global infrastructure market.

Early trading saw shares of luxury and footwear companies fall. Ralph Lauren and Capri Holdings both fell 5.7% and 7.3% respectively. Estee Lauder is also down 8.6%.

Tapestry shares dropped 4%, while Nike fell 4.5%. China is the largest revenue contributor to these companies and a slowdown in the consumer demand could affect growth.

(source: Reuters)