Can These 3 Stocks Weather the US-China Trade War?

The U.S. and China have a complex economic relationship that is both codependent and competitive.

However, American businesses looking to expand in China are up against significant obstacles as tensions between Beijing and Washington mount. Just think about the portfolio's three main holdings: Nvidia, Apple, and Starbucks.

The two greatest economies in the world are still closely connected to all three businesses. China's mainland accounts for 21% of Nvidia's total sales, 19% for Apple, and 9% for Starbucks.

More significantly, everyone believes that the expanding middle class in China represents a largely unexplored market for Chinese goods. And in the case of Apple, the location where the majority of its current product line is manufactured.

However, it's certain that domestic rivalry is escalating, a tendency that both nations' leaders have accelerated. President Joe Biden's emphasis on technology, particularly limiting U.S. investment in Chinese companies like semiconductors and limiting the export of cutting-edge AI processors, as well as export regulations implemented by the Trump administration, have all played a part.

The People's Republic of China president, Xi Jinping, is still advocating for China's economic independence, particularly in the field of technology. Deal-hungry consumers are drawn to local businesses because to a slow economic rebound following the Covid pandemic lockdowns.

This has resulted in a more crowded smartphone market for Apple, with domestic rivals like Honor, a Huawei spinoff, Oppo, and Vivo providing less expensive alternatives to the company's flagship iPhone.

Early in 2024, sales of the iPhone fell 30% year over year, according to a report released last month by Jefferies. The analysts stated that sales for competitors like Huawei had "remained much stronger." China was Apple's weak point in the December quarter, declining 13% and falling short of forecasts.

Navigating Challenges in the Chinese Market

At the state level, last year there were media allegations that the Chinese government was banning iPhones. Early in September, the mega-cap stock saw a massive $200 billion market value decline during a two-day sell-off, despite the fact that Chinese officials have refuted these reports. Since then, share prices have decreased.

To be clear, in China, Apple continues to lead. Chinese suppliers are quickly catching up to the iPhone, which is expected to have a record market share of 17.3% in 2023 according to the International Data Corporation (IDC). For instance, Honor finished a very close second last year with 17.1%.

Apple's leadership is adjusting. This involves growing its company into India, where it launched two retail locations in the previous year. The world's most populated nation presents a "huge opportunity" for the company, according to CEO Tim Cook's recent comments to CNBC.
Additionally, companies that make the iPhone, such as Foxconn, have begun doing business in India.

This change broadens Apple's supply chain and gives the company access to a larger user base in a less crowded market. Given Apple's outstanding fundamentals, we continue to believe that you should buy the firm rather than trade it.