US tech stocks hit as Trump escalates China trade war to deal bans

China's president Xi Jinping has threatened his country will “punch back” against President Donald Trump's trade war, which has escalated since the revelation that the US plans to bar Chinese companies from investing in high-tech US firms and block exports of future technology products.

President Xi’s statement was made last Thursday to a group of 20 mostly American and European multinational chief executives in Beijing. 

“In the West you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” he is reported to have said, “in our culture we punch back.”

However, that is unlikely to impress Mr Trump, who widened the assault on China’s business practices, according to reports that he has ruled out further inroads into American technology leadership in wide range of sectors.

The escalation of the tit-for-tat tariff spooked Wall Street, sending stocks to their biggest one-day slide in months.

After being relatively resilient in the trade war buildup – which has largely affected stocks of industrial exporters such as Boeing, Caterpillar, Harley Davidson and Alcoa – tech companies felt the lash of a selloff.

Tech companies in the S&P 500 pull in about 59% of their revenues from overseas but have risen 9.5% this year compared with the index’s overall gain of 1.5%.

Among them are companies such as Twitter, Nvidia and Amazon.com, which have surged more than 40% apiece.

Nasdaq slumps most on Wall Street
The Nasdaq Composite slumped 2.1% to 7532.01, its biggest one-day percentage decline since March, while the Dow Jones Industrial Average fell 328.09 points, or 1.3%, to 24,252.80. Earlier, it plunged as much as 446 points. The S&P 500 dropped 1.4% to 2717.07.

Among tech companies whose shares have had double-digit percentage gains this year, Netflix fell 6.7%, Facebook lost 3.7%, Amazon.com was down 3.6% and Nvidia shed 5.5%.

Neuberger Berman chief investment officer Joseph Amato says trade has been the main focus for investors but most portfolio managers at his firm don’t see it becoming a big disruption to the world economy.

He adds the market also isn’t concerned about tariffs that affect a small portion of goods, noting there are “many other ways that the Chinese could impact the US economy.”

Mr Trump has raised the level of potential tariffs on Chinese goods to $US450 billion, more than double the total of US goods exports to China of less than $US200b.

But in the past China has used non-tariff measures, such as holding up merger and acquisition deals involving US companies, delaying licences, ramping up inspections of imports or foreign-owned businesses and ordering its billion-odd consumers to shun American products.

“That’s what the market’s worried about,” Mr Berman says.

China's retaliation plans
For example, Chinese authorities for months have been holding up their approval of Qualcomm’s planned $US44 billion purchase of Dutch company NXP Semiconductors, a deal widely seen as critical for the US chip maker.

“Apple’s $US40b market in China for iPhones, the largest in the world, could quickly collapse,” Peterson Institute for International Economics senior fellow Nicholas Lardy says.

“Similarly, General Motors sells more cars in China than in the US, sales that could easily be disrupted by the Chinese government.”

In a trade-related move, Harley-Davidson said it would shift production overseas to avoid European Union tariffs on its motorcycles. In recent years, it has advanced plans to open factories in countries including Brazil and Thailand to hold down prices, as sales falter in the US.

The EU tariffs, imposed after the US slapped tariffs on steel and alumnium, would raise the cost of each US-made motorcycle by about $US2200. Harley Davidson shares fell 6.0%.

Oil drops, bond prices rise
In other financial markets, oil prices fell in the wake of a weekend decision by Oped and its allies to begin ramping up production.

US crude for August delivery fell 0.7% to $US68.08 a barrel, coming off its best day since November 2016 on Friday. Brent crude, the global benchmark, declined 1.1% to $US74.73 a barrel.

US government bonds strengthened as investors sought the safety of sovereign debt. The yield on the benchmark 10-year Treasury note settled at 2.875% compared with 2.902% on Friday.

A complicating factor for global investors is that the US economy is expanding at a faster rate than Europe and Japan, while emerging markets such as China are weakening.

“We’ve moved away from the synchronous global expansion,” says Principal Global Investors chief global economist Bob Baur, who believes global growth peaked around February of this year but that “the US is still gaining momentum.”

In Asia, Hong Kong’s Hang Seng fell 1.3%, its lowest since December, while the Shanghai Composite slipped 1.0% to its lowest since June 2016. Japan’s Nikkei 225 declined 0.8%.

The Stoxx Europe 600 declined 2%, with Germany’s sliding 2.5% after the monthly Ifo Business Climate Index showed business sentiment deteriorated further in June.

France’s CAC 40 fell 2.0% and the UK’s FTSE 100 slumped 2.2%.