What Trump’s China Tariffs Have Cost U.S. Companies?

For decades, the two economic superpowers—the U.S and China—have converged on seemingly contentious issues. However, the U.S. administration under Donald Trump's presidency is now attempting to undo that as a deepening trade rift with China affects businesses in both economies. In July, August, and September 2018, the United States successively increased tariffs on a total of $250 billion in annual imports of Chinese goods, stating that it wished to safeguard U.S. companies from unfair Chinese practices and reduce the bilateral trade deficit. China responded with tariffs on $110 billion of imports from the United States. The trade tensions between the two economic superpowers have led to a significant and rapid reduction in bilateral trade in taxed goods. Our study employed an event study methodology to investigate the reactions of the sectoral U.S. stock prices to the China tariffs. This paper seeks to examine the heightened uncertainty surrounding the U.S.-China trade war to shed some light on the reactions of sectoral U.S. stock market to China tariff threats. Generally, the initial effects of trade tensions appear more significant than had been expected, reflecting the uncertainty shock. Specifically, the responses of information technology, industrials, and energy were even more severe than the reactions of financials, consumer discretionary items and staples, healthcare, real estate, aerospace and defense, and utilities. Designed to create a portfolio with balanced exposure, certain sectors have been positioned for offense (information technology and industrials) with others for defense (healthcare, real estate, and utilities). Our results clearly show that the sentiment and confidence of investors are impacted by heightened uncertainty.