Global financial markets were once again swept-up in a wave of trade war-related concerns, with several U.S. and Chinese tech sector stocks thrown deep into the red.

The activity comes as the U.S. intensified its protectionist rhetoric with respect to industries sensitive to national security.

In August 2017, U.S. trade representative Robert Lighthizer had formally initiated an investigation of China under Section 301 of the Trade Act of 1974.

The probe was enacted to determine whether acts, policies, and practices of China’s government, where related to technology transfer, intellectual property, and innovation, may be found “unreasonable or discriminatory and burden or restrict U.S. commerce.”

The initiation of the investigation followed a mid-August memo by U.S. President Donald Trump that emphasized the U.S. as “a world leader in research-and-development-intensive, high-technology goods,” and that “violations of intellectual property rights and other unfair technology transfers potentially threaten United States firms by undermining their ability to compete fairly in the global market.” 

The President’s memo further noted that China’s conduct “may inhibit United States exports, deprive United States citizens of fair remuneration for their innovations, divert American jobs to workers in China, contribute to our trade deficit with China, and otherwise undermine American manufacturing, services, and innovation.”

Among the Section 301 investigation’s findings, China was found to direct and facilitate “the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.”

Made in China

With China reportedly accelerating its financial support for its “Made in China 2025” strategy, where emerging new technologies such as the Internet of Things (IoT), smart appliances and high-end consumer electronics have surfaced to the forefront of the country’s innovative approach to manufacturing, the U.S. has become increasingly wary of Chinese interests in its domestic tech arena.

Kenneth DeWoskin, a senior advisor to Deloitte’s Chinese Services Group, noted that over the past decade, a wide variety of export controls have evolved, along with an expanding list of barriers to the acquisition of some U.S. tech companies. “A more and more commodious view of national security issues related to technology” – propelled by concerns about economic growth and competitiveness, safety and diplomacy – “could lead to an increase of the scope and powers of US tech regulators,” he added.

Indeed, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) legislation aims to replace the Committee on Foreign Investment in the United States (CFIUS), amid criticisms that CFIUS has become outdated – in a manner that could inadvertently harm national security.

Investors shaken

However, CFIUS has recently given recommendations to U.S. officials that have led to the demise of mega-mergers in the tech sector such as chipmaker Qualcomm’s (QCOM) US$117bn proposed tie-up with Singapore-headquartered semiconductor supplier Broadcom (AVGO).

In mid-March, President Trump issued an executive order citing “credible evidence” that Singaporean domiciled Broadcom, along with its partners, subsidiaries, or affiliates, “might take action that threatens to impair” U.S. national security through exercising control of Qualcomm.

As such, he prohibited the proposed takeover of Qualcomm and sent the chipmaker a presidential order to immediately and permanently abandon the deal.

The escalating tensions between the U.S. and its global trading partners generally continued to rattle the financial markets Monday, with the S&P 500 (SPX) down more than 1.6% intraday, and with the Nasdaq (NDX) off nearly 2.5%.

Unsurprisingly, tech stocks led the way lower, including Facebook (FB -3.5%), Amazon (AMZN -3.1%), Netflix (NFLX -6.0%) and Alphabet’s Google (GOOG -3.25%). Chinese ADRs also suffered, as the Hang Seng shed 1.3% overnight. Alibaba Group (BABA) plunged 5.2%, Baidu (BIDU) fell more than 4%, and Changyou.com (CYOU) was off 2.2%.

Meanwhile, the value of BABA shares has fallen by roughly 10% vs the Technology Select Sector SPDR Fund (XLK) since Nov 11, 2017, amid the ongoing trade-related disputes. However, the value of AMZN shares has risen by roughly 74% vs the Invesco China Technology ETF (CQQQ) over the same period.

Prices of U.S. Treasuries also rose around 0.8% on the day Monday, with the yield on the 10-year note bid at around 2.877% intraday.