U.S. stocks fall in face of possible restrictions to Chinese investment

As expected, the current trade wars between the U.S. and its G7 allies and China are also affecting the American economy. On Monday, U.S. stocks fell substantially as uncertainty increased over how the Trump administration will proceed with the China tariffs and investment restrictions. This raised concerns for investors, considering the possible outcome of a full trade war between the world’s two largest economies. Stocks in technology, which is the industry where Chinese investment will be restrained by the Treasury Department, were the most affected ones and caused for the Nasdaq Composite to decrease 3%.

Restraint in Chinese investment was the main cause for the shake-up in U.S. stocks and, after some conflicting statements between White House officials, the stocks were slightly re-stabilized. President Trump’s main economic adviser Peter Navarro denied that the restraints would be done specifically to China, but to all countries “trying to steal our technology”. He had also stated that these plans were not immediate and would not come in the near future.

However, this has explicitly contradicted previous instruction by President Trump, who stated in a memorandum that Treasury Secretary Steven Mnuchin must work to combat Chinese investment as part of the trade wars. He has also repeatedly stated in rallies and press conferences that “the United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.”

The Dow Jones Industrial Average lost and regained points on Monday, yet it ended up losing 1.3% of its value. The S&P 500 lost 1.4% and the Nasdaq Composite lost 2.1%, regaining some of its value after an initial 3%.

These talks caused the technology industry to become the most unstable on the market, with investments and stocks considered risky. It is quite a change from the previous perception the industry had, as it was seen as a safe investment in the face of troubling agriculture and industrial sectors. This is also due to retaliatory tariffs from Canada and Mexico, responding to the measures over aluminum and steel. This substantially changed on Monday, as Netflix stocks fell 6.5%, Facebook fell 2.7% and Amazon fell 3.1%.

It must also be noticed that some U.S. companies will also be hit by the potential tariffs on Chinese goods, as many of them have factories in China. Especially in the case of technology, over half of S&P 500 tech companies’ revenue comes from overseas sales, which would also be affected by the measures.

The project of limiting Chinese investment in U.S. goods is considered to be one of the most extreme legal measures in American law and has rarely been taken against any other country in the U.S. history. The Justice Department has justified its use by framing the investors as threats to American security. The Trump administration has constantly stated that the measure would affect “significant technology”, which mainly includes transportation and robotics.

The measure is being taken despite several specialists and advisers showing discourage, as China is willing to communicate and negotiate instead of engaging in a tariff-to-tariff trade war. Although the Chinese government has stated that it will not act against U.S. companies which are currently working in China, they are willing to retaliate if they find themselves threatened by the White House’s decisions. It is also believed that China and the EU are currently working together and are willing to “oppose protectionism and unilateralism”.

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