Tariffs and trade tensions with China have put tremendous pressure on stocks in the past several years. While the market has powered through those concerns in 2020, there is a lot to be sorted out for the long-term as the U.S. and China continue to feud.
This week, as tension with China have percolated, the U.S. stock market rose. The S&P 500 rose more than 2%, but there have been several days in the past weeks in which stocks fell as geopolitical tensions flared.
Investors should be "absolutely prepared" to see U.S. companies migrate their operations back into the U.S. or other countries, as trade with China becomes decreasingly a viable option, said Jonathan Ward, Oxford PHD and founder of Atlas Organization, a business and government consultancy concerning U.S.-China relations.
Recently, President Trump has blamed the global outbreak of COVID-19 on China, saying the country mishandled the outbreak. Trump is threatening to impose new tariffs on Chinese goods after a January 15 agreement that rolls some tariffs back to 7.5% from 15%.
Most recently, the Senate has passed a bill, which is now in the House of Representatives for a vote, that would delist Chinese companies from American stock exchanges. Congress alleges that Chinese companies do not adequately comply with standards from the Public Company Accounting Oversight Board, which lays out expectations that companies are transparent about their accounting and audit records. This s just the latest sign of broader tensions between the two countries.
Here's what Ward said:
"Rebuilding global supply chains in a way that reduces their dependency on China is absolutely what has to happen on a strategic level for the United States. Investors have to be looking at a completely different phase of globalization. If we let China into the world economy, thinking that they would become essentially a friendly partnered nation, that's failed completely, so nobody should be betting on that anymore."
With this context, companies want to avoid tariffs and may move operations into the U.S., which is just one concern among others. Apple (AAPL) - Get Report recently said it will produce airpods out of Vietnam.