When the Fed met to discuss the interest rate policies on Aug. 23, markets turned their attention elsewhere. It focused on the escalating trade war. China retaliated on the U.S. tariffs by imposing taxes on $75 billion worth of U.S. imports.
President Trump is now threatening to lift the 25% tariff on $250 billion of Chinese good to a 30% rate as of Oct. 1. The other $300 billion of Chinese good will face a 15% tax on Sep. 1, up from 10% previously.
Investors might bet that both sides are bluffing. China is timing its tariffs at the same time as that set by the U.S. It looks as though China’s retaliatory tariffs are a negotiation tactic.
Investors who are betting the escalating tariffs are a bluff should look at specific sectors that are getting beaten down. The energy sector is suffering from low oil prices, whose prospects are tracking the trade war progress. BP plc, (NYSE:BP) Exxon (NYSE:XOM), and ConocoPhillips (NYSE:COP) all offer deep value on a P/E basis and would rebound once trade tensions end.
The technology sector is reacting negatively to the tariffs, with Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) leading the decline. But the chip sector has the most upside if trade tensions end. Micron (NASDAQ:MU), Nvidia (NASDAQ:NVDA), and Intel (NASDAQ:INTC) benefit most with a resumption in orders if the U.S. and China make a trade deal.
Disclosure: Author owns shares of BP plc.
