Are U.S. industries resilient in dealing with trade uncertainty ? The case of U.S.-China trade war

For decades, the two economic superpowers-the U.S and China-have been integrated. But the U.S. administration under Trump presidency is now attempting to undo that, as a deepening trade rift with China affect businesses in both economies. In July, August and September 2018, the United States successively increased tariffs on a total of $250 billion in annual imports of Chinese goods, stating that it wished to safeguard U.S. companies from unfair Chinese practices and lessen the bilateral trade deficit. China responded with tariffs on $110 billion of imports from the United States. The trade tensions between the two economic superpowers have led to a significant and rapid reduction in bilateral trade in taxed goods. This paper seeks to examine the heightened uncertainty surrounding the U.S.-China trade war to shed some light on the reactions of sectoral U.S. stock market to China tariff threats. While all sectors face increasing uncertainty, this trade war had varying sectoral effect. Specifically, the responses of information technology, industrials and energy were even more severe than the reactions of financials, consumer discretionary and staples, healthcare, real estate, aerospace and defense and utilities. Such positioning is designed to create a portfolio with balanced exposure to certain sectors for offense (information technology and industrials) and others for defense (healthcare, real estate and utilities).