ETF Investors Should Monitor Tech if Trade Wars Escalate

With the latest round of tariffs on Chinese companies going into effect, ETF investors should keep an eye on the technology sector if relations between China and the U.S. continue to deteriorate.

“You can get too comfortable with the fact that tariffs haven’t done much to slow down the U.S.,” Ryan Detrick, senior market strategist at LPL Financial, told CNBC. “Should the back and forth with China take a nasty turn, that could catch people off guard potentially.”

Tariffs raise the cost for companies, which would mean higher costs for consumers on a number of goods. additionally, the depressed economic growth could translate to pressure on investments.

Investors may hedge potential downside risks in technology sector through inverse or bearish ETF plays. For instance, the ProShares UltraShort Technology (NYSEArca: REW) takes the -2x or -200% daily performance of the Dow Jones U.S. Technology index and the Direxion Daily Technology Bear 3X Shares (NYSEArca: TECS) reflects the -3x or -300% daily performance of the S&P Technology Select Sector Index.

The technology sector is one area that could be particularly susceptible to weakness if trade barriers escalate since a number of products are built or manufactured in China, Ed Mills, Washington policy analyst at Raymond James, said.

Tech Sectors With Possible Concerns

Specifically, Mills pointed to areas that could be particularly exposed to the trade concerns, including semiconductors, 5G communications, cell phones, artificial intelligence, robotics and biopharmaceuticals. Apple was among the top of the list, and the company has already warned of the potential negative impacts the tariffs could have on its business in a letter to the Office of U.S. Trade Representative earlier this month.