Investors have a problem. Two of the world's most important economic powers -- the U.S. and China -- are engaged in a trade war. As tensions escalate, both sides are being pushed to more extreme measures.

The United States Commerce Department announced on Oct. 29 that American companies will no longer be permitted to sell components and technologies to Fujian Jinhau Circuit Co., a leading Chinese semiconductor company.

It is a surgical strike, and Trade Wars 101. Mutual destruction is a distinct possibility.

For decades, Chinese political leaders have committed to globalization. They supplied access to cheap labor and reduced regulation, and offshoring re-industrialized China. In the process, countless millions of Chinese have been lifted from poverty into the middle class. Today, China's high single-digit gross domestic product percentage growth is the envy of the developed world.

President Xi, its popular leader, has a new vision. "Made in China 2025" is dedicated to moving the country up the value chain in 10 key sectors. Xi wants China to be a global leader in technology forward sectors like robotics, biotechnology, self-driving vehicles, semiconductors, aerospace, renewable power generation and agriculture.

It is an ambitious agenda that local companies have embraced. CNBC reported in August that Chinese firms added 87,000 industrial robots in 2017. That figure is near the combined purchases of Europe and the U.S. during the same time frame.

On one hand, retooling Chinese factories with the latest gear is a longer-term competitive threat to other countries. On the other hand, the country has become a major buyer of high technology.

IC Insights, a semiconductor industry research firm, notes China is the world's leading buyer of semiconductors. The country uses $140 billion -- 38% of the world's consumption -- of integrated circuits a year. And the trajectory is straight up. Xi has signaled his government is prepared to commit $161 billion over ten years to develop homegrown chip companies.

The decision by the Commerce Department to block sales to Fujian Jinhau may be in the long-term strategic interest of the United States, but in the near term it is devastating for American technology companies. It removes a major buyer, creating a supply glut. Ultimately lower prices will follow. This hurts stakeholders.

For a long time, investors have ignored the Sino-American trade dispute. Many assumed tariffs and tough talk were bluster, a bargaining tactic. The calculus was that officials on both sides would eventually come to their senses because further escalation meant mutually assured destruction.

It is now clear a larger agenda is at play. There will be no cease fire anytime soon.

Peter Navarro, director of trade and industrial policy for the White House, told CNN Business, "if we lose our industries of the future, we lose our future". For the Trump administration, maintaining strong competitive advantages over the Chinese is not enough. Officials view Chinese innovation as an existential threat. They want to shut it down. They seek the de-industrialization of China and are trying to make that happen in a mercantilist update of the Cold War.

Given the stark choice, investors should prepare for the trade dispute to get much hotter, and claim more victims.

Apple Inc. (AAPL) , which reports its September quarter earnings on Thursday after the close, was largely unscathed in October's carnage, but it seems to be only a matter of time before it gets caught in the crosshairs. The iPhone maker has built an impressive Chinese business. In its June quarter, Apple had $9.5 billion in sales in greater China, an increase of 19% year-over-year. More importantly, its entire supply chain is located in Asia.

TheStreet will be live blogging Apple's earnings after the close on Nov. 1. Please check our home page then for more details.

Tim Cook, Apple's CEO, cut his teeth overseeing the development of relationships with Chinese and other Asian suppliers. As Apple production scaled up, managing its global supply chain has contributed mightily to the bottom line.

Cook says he has been assured by President Trump that no tariffs will be applied to Apple products. The Apple leader also a longstanding, cozy relationship with President Xi. He was one of a small group of American and Chinese business leaders who attended a lecture given by Xi about innovation and reform.

However, that was before the trade war escalated. Investors should be aware Apple might become a victim of extreme measures -- collateral damage in a global trade war that could persist for years.

"China is a concern; that said, larger screen models tend to do better there and with the XS Max being the first large screen X model, it will be interesting to see how it performed there," said Zev Fima, research analyst for Jim Cramer's Action Alerts Plus portfolio, which owns Apple. "The other concern with China is the current caps on gaming, which could be impacting Services revenue as mobile gaming, especially mobile esports, has become very popular in the region. So we will be watching that very closely with a focus on Tim Cook's commentary regarding his outlook on the region going forward."

Apple's stock is still up 30% in 2018. Its market capitalization remains above $1 trillion. It looks strong on the outside, but looks can be deceiving. Bulls have been smart so far, but should be wary now.

To learn more about my recommendations at the crossroads of technology and politics, check out my daily newsletter Strategic Advantage.

To learn about my practical research in the short-term timing of market indexes and commodities, check out my daily newsletter Invariant Futures.

The author does not hold any positions in the stocks mentioned in this article.

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