On behalf of our Board of Governors, I’d like to invite you to join The South African Investor
Our aim is, quite simply, to protect and expand your personal wealth through the traditional methods of making money…
However, I have to tell you upfront: at our last Executive Committee meeting, our members proposed 1,000 nominees for membership. The reality is, though, we can only accept 275 new members this year. We have to limit numbers, and you’ll soon see why…
#1: Carmakers will experience lower sales and job losses
The thing is, China is the second-biggest supplier of car parts to the US – accounting for around 12% of imports. So increasing tariffs will hurt US companies who are reliant on Chinese parts.
For example, electric vehicle producer Tesla, is feeling the pain.
US-based Centre for Automotive Research warned that “due to the automotive industry’s reliance on complex cross-border supply chains, any new barriers to trade will have a significant impact on the US automotive industry, consumer prices, and US sales, employment, and economic output”.
To put it in perspective, a 25% tariff would cost 366,900 US jobs in the auto and related industries. So in short, tariffs would be detrimental to the car industry.
#2: Tech giants’ costs will rise
Another sector that’s vulnerable to an escalation of tariffs is the technology sector – including semi-conductors and chip makers.
Major US chip makers and electronics manufacturers like Nvidia and Intel are in the firing line if trade wars escalate.
Firstly, even though almost half of the world’s chips are designed in the US, much of the output is sent for manufacturing to China. In China, Integrated Circuits (ICs) are assembled, tested, and packaged. Some of these then need to return to the US for the use in manufacturing.
Secondly, a large number of consumer electronics products are finished in China and then imported into the US. This means, prices on electronics imported to the US from China will increase. Consequently, US-based semiconductor suppliers will have to battle with the rising costs.
Tech companies like Apple also won’t be spared.
If Trump slaps tariffs on the remaining billions of dollars’ worth of Chinese goods, Apple may need to raise their iPhone prices significantly to offset the higher costs of parts.
JP Morgan estimates that “…a price increase of around 14% is required to absorb the impact of a 25% tariff”.
The bank also broke down the costs of making and selling the iPhone XS with no tariffs, which is about $1,000 vs. the cost if a 25% tariff hits China-made parts, which would push the retail price up to $1,142.
One way Apple can combat tariffs is to move production to the US. However, Bank of America Merrill Lynch estimates that prices would need to increase by 20%, if 100% of the phone is manufactured in the US.
Either way, these tech companies will feel the brunt of trade wars.
Earn yourself a comfortable second income and beat the market!
Our elite trading analyst Timon Rossolimos has earned our members 217.91% in gains.
You won’t find a winning service like this anywhere else. Click here
to become a member of this ELITE SERVICE
Does this mean you should sell your investments in these two sectors?
Nobody really knows what goes on in Trump’s mind. He could escalate tariffs at any time. And if this becomes a reality, companies like Facebook, Intel, Nvidia and Tesla, will suffer in one way or another.
But, if you believe that these companies own game-changing technology that will thrive in the future, then there’s no need to sell your shares as they’ll continue to grow and make money.
In fact, at the South African Investor, we still expect to make good money from tech stocks during this late-stage bull market.
One tech giant we’ve betted on since the beginning of this year is, Alibaba. Its shares have increased over 20% so far this year – outperforming both the S&P and JSE. And recently, the company posted quarterly revenue and earnings that topped analyst estimates.
See you next week,
Managing Editor, Real Wealth