In our recent trade war analysis Are you ready for a Cold War in tech?
we argued that the world has seen the starting signal of a Cold War in technology between the US and China. The most likely outcome of the US ban of Huawei due to national security issues is that the global supply chain will come under attack the next couple of decades. Many industries from transportation, semiconductors, biotechnology, rare earth minerals etc. will all most likely be deemed of national security to both the US and China. If the rivalry intensifies between the two countries the only sensible trajectory from here is a global supply chain separation. US and China will seek to make themselves independent of each other to limit the political downside risk in an escalating trade and technology war Semiconductors are bleeding and it will continue
Since the US escalated the trade war by increasing the tariffs from 10% to 25% on $200 billion of Chinese goods on May 6 semiconductors have been tanking. The industry group can be divided into two groups: semiconductor equipment makers and pure semiconductor manufacturers.
We have devised two custom indices tracking those two industries to measure the impact on the global supply chain the trade war. As the chart below shows the semiconductor industry is hurting from the US-China trade war escalation and our view is that it will continue. Investors should stay underweight semiconductors. In our last trade war analysis we highlighted the US companies with the biggest exposure to China and the majority of those are in fact US semiconductor companies.