ETFs
Biden increases tariffs on certain Chinese imports: ETFs will be impacted – May 15, 2024
On Tuesday, the Biden administration announced significant tariff hikes on $18 billion in Chinese imports to protect American industries from unfair competition. The new tariffs cover a wide range of products, with major impacts on sectors such as electric vehicles, solar energy and steel.
The Biden administration has pointed to overproduction and potential flooding of the market by Chinese manufacturers as the main reasons for this tariff increase. The Biden administration seeks to restore global market stability and strengthen domestic production capabilities in the United States. China views the move as part of the country’s continued tough foreign policy toward China.
Specific tariff adjustments
Electric vehicles: Tariffs on imported Chinese electric vehicles will increase from 25% to 100%.
Solar cells: The import tax on Chinese solar cells will increase from 25% to 50%.
Steel and aluminum: Customs duties on certain Chinese imports of steel and aluminum will see an increase from 7.5% to 25%.
Additional tariff adjustments include tripling rates on lithium-ion batteries for electric vehicles and other uses and a 25% to 50% increase on Chinese semiconductors starting in 2025.
New prices on other products
For the first time, tariffs will be imposed on Chinese imports of medical needles and syringes, as well as huge onshore transport cranes. Additionally, Chinese rubber medical gloves as well as some respirators and masks will face increased tariff rates.
Impact on ETFs
First Trust RBA American Industrial Renaissance ETF (AIRR) – Likely winner
The latest round of tariff hikes is expected to boost U.S. manufacturing. The AIRR Fund’s Richard Bernstein Advisors American Industrial Renaissance Underlying Index measures the performance of U.S. small and mid-cap companies in the industrial and community banking sectors. The fund charges 70 basis points in fees and returns 0.16% per year.
iShares US Infrastructure ETF (IFRA) – Likely winner
The Biden administration’s latest approach aims to support ongoing investments in U.S. infrastructure and clean energy. The IFRA fund’s underlying NYSE FactSet US Infrastructure Index includes stocks of U.S. companies with exposure to infrastructure that could benefit from a potential increase in domestic infrastructure activity. The fund charges 30 basis points in fees and earns 1.77% per year.
Autonomous and Electric Vehicles ETF (DRIVE) – Likely winner
The White House believes that Beijing’s subsidies lead to overproduction of clean energy products and cheap electric vehicles. Therefore, the borders entered the EV space. But this EV ETF DRIV is heavily focused on the United States (54.1%), followed by Japan (11.9%), South Korea (5.3%) and Canada (5.0%) . China only has about 3% exposure. Due to its strong exposure to the United States, this fund should not be impacted by the recent increase in customs tariffs.
VanEck Semiconductor ETF (SMH) – Likely winner
The underlying MVIS US Listed Semiconductor 25 Index tracks the overall performance of companies involved in semiconductor production and equipment. The fund is primarily comprised of US-based chip stocks, while some Dutch stocks have exposure there. The fund should therefore benefit from the increased sales potential of the underlying companies.
iShares US Medical Device ETF (IHI) – Likely winner
The ETF seeks investment results that generally correspond to the price and yield performance of the Dow Jones US Select Medical Equipment Index. Since it is a purely U.S. ETF and has no exposure to China, import duties on Chinese medical equipment are not expected to negatively impact the fund.
Invesco Solar ETF (BRONZE) – Not materially impacted
The United States has 54.53% exposure to the fund while China holds 16.68%. That means any import duties on Chinese solar panels won’t hurt the fund too much. The American company First Solar occupies the first place in the fund with approximately 12.47%, followed by the American company Enphase Energy (9.02%) and the American company Nextracker (7.23%).
Lithium and Battery Technology ETF (BED) – Probably loser
The underlying Solactive Global Lithium Index tracks the performance of the largest and most liquid listed companies engaged in lithium exploration and mining or lithium battery production. The fund has a 39.8% focus on China, while the US has less exposure at 18.9%.
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