Established companies who use China as a manufacturing location have suffered a major blow to their stocks. The severe decreases came after President Trump posted a tweet demanding that American companies pull their production out of China.
Shares in Apple, Nike and Caterpillar have plunged since the social media announcement. Apple has suffered a drop of 4.6 per cent, while Nike and Caterpillar both dropped more than 3 per cent on Friday evening.
These companies are a part of CNBC´s China Trade Index which tracks companies with the highest amount of imports and revenue exposure in China. The index includes companies such as Best Buy, Kohl´s and Honeywell, all of which took a beating after the tweet was published.
Trump tweeted on Friday: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..your companies HOME and making your products in the USA.”
So far it seems as though the president does not have the power to enforce his command without the support of Congress. Even though he can´t order companies to make such a move, shares dropped anyway amid concerns that administration would make sourcing in China more difficult for them by any means.
His order came after a recent dispute with China regarding trade tariffs. Donald Trump has proposed new tariffs on Chinese goods to be initiated on 1st September and 15th December this year. The Chinese State Council has retaliated by imposing tariffs on $75 billion worth of US goods in two batches which will be effective from the same dates.
China has also made plans to resume tariffs which were previously paused back in April. These particular tariffs were 25 per cent on US cars and 5 per cent on auto parts and components which will now come back into effect on 15th December.
Stocks and bond yields fell drastically following this announcement.
Earlier this month, Trump surprisingly ended a trade war cease-fire by suggesting 10 per cent tariffs on another $300 billion of Chinese goods. Some of these specified tariffs have been postponed until December to avoid any negative impact on the Christmas holiday shopping season. Also, some products were removed from the list.
Last week, White House trade advisor, Peter Navarro, said there are still many “structural issues” the US needs to settle with China before they can reach a deal. According to Navarro, these issues include cyber intrusion into US business networks, intellectual property theft and currency manipulation.