On Monday, All American stock markets experienced significant declines as the result of recent escalations in the U.S.-China trade war. Accordingly, the nation’s technology sector took a major hit. In particular, Big Tech firms Alphabet, Amazon, Apple, Facebook, and Microsoft lost a collective $162 billion in market value.
As bad as the August 5 drop was, the tech sector might experience even greater losses if the trade war continues.
Why the U.S. Stock Market Suddenly Plunged
Last week, President Trump declared that he’d issue a new 10 percent tariff on $300 billion of Chinese imports on September 1. Subsequently, the People’s Bank of China finally gave into mounting market pressure and let the yuan fall to the 7-per-dollar level. As a result, American companies will be able to buy Sino goods at affordable rates in spite of Washington.
Though the Chinese central bank claimed the change wasn’t retaliatory, market analysts believe otherwise. Merrill Lynch’s head of Chinese equity strategy told CNBC the currency shift suggests the Asian superpower views the trade war as “a protracted conflict.”
The U.S. stock experienced its steepest drop of the year because of these escalating trade hostilities. The Dow Jones Industrial Average lost 767 points while the NASDAQ declined by 277 points, 3.4 percent of its value.
Consequently, the sector’s most prominent firms saw their value fall significantly. Apple led the pack with a 5.23 percent decline in its market capitalization. Similarly, Google parent Alphabet stock fell by 3.47 percent; Amazon stock dropped by 3.19 percent; Facebook shares declined by 3.6 percent, and Microsoft’s went down by 3.43 percent.
In total, the sector’s five Big Tech firms lost $162 billion in value in one day.
Why Things Will Get Worse
Admittedly, the tech industry losing the equivalent of the annual gross domestic product of Kazakhstan in one day is very bad. However, the sector’s situation will be even worse if the Trump administration taxes the import of Chinese electronics.
The U.S. China trade war has already caused significant losses and disruption within the tech segment. Because of its inability to sell components to blacklisted Chinese firm Huawei, chipmaker Micron had to lay off workers. Similarly, Samsung’s appliance business has suffered because of new tariffs on Chinese aluminum and steel.
Furthermore, leading tech firms that import Chinese goods into America have expressed anxiety about their financial health in the face of new tariffs. Last month, Microsoft, Nintendo, and Sony asked for exemptions from new trade taxes for the sake of the U.S. economy. Thus far, Washington hasn’t publicly replied to the games companies’ request.
Besides, Apple asked that parts used in the construction of its Mac Pro computers not be subject to new import taxes. However, in that case, President Trump flatly denied the manufacturers plea for clemency.
ZDNet reports the Trump administration’s existing import taxes cost the domestic tech sector $1.3 billion in May alone.
With the federal government’s hard-line approach to the trade war, U.S. firms dependent on Chinese components have two unappealing options. Companies can either absorb the import taxes or pass them along to consumers. Either way, large, medium, and small tech firms are facing declining revenues and a greater level of market contraction.