Cramer: We could be facing a cold war with China, and these stocks may be sacrificed

KEY POINTS

• The United States' escalating trade war with China could end in an outright cold war that debilitates parts of the stock market, CNBC's Jim Cramer warns.
• President Donald Trump could want "the economic equivalent of a regime change" in China, Cramer says.

Recent swings in the stock market don't make it an easy environment for individual investors, CNBC's Jim Cramer admitted as fears tied to earnings and geopolitical tensions drove many stocks lower on Monday.

"Those losses are substantial if you own anything connected to housing or to China, two problems that I regard as entirely man-made," the "Mad Money" host said. "Housing's being crushed by an overzealous Federal Reserve and China's getting slammed by the president's trade war."

Cramer worried that the escalating conflict between the United States and China over trade, with officials from the two countries continuing to trade barbs Monday, could have even more serious implications than many think.

If trade talks abruptly end, a distinct possibility considering both countries' increasingly tense exchanges, "we better get used to some serious collateral damage" to the stock market, Cramer said.

He noted that referring to China's government as the "Chinese Communist Party," as top White House economic advisor Larry Kudlow did in a Sunday interview with the Financial Times, could mean that the Trump administration is souring on reaching any kind of business deal with China.

"I think the president wants the economic equivalent of regime change," Cramer said. "Yep, not an economic war, but a cold war, with the Chinese once again playing the pre-Nixon role of worldwide nemesis. Needless to say, that is not what Wall Street wants to see."

A repeat of the Cold War — a time of political and economic hostility between the former Soviet Union and the United States and its allies that occurred after World War II — would weigh on a number of China-related stocks, Cramer warned.

The stock he was most concerned about was that of Rockwell Collins, an aircraft manufacturer set to be acquired by rival United Technologies in a deal at risk of being blocked by Chinese authorities.

Lately, the action in shares of Rockwell Collins has signaled "a tremendous amount of angst among the arbitrage community that are in this deal," Cramer said. "At the same time, United Technologies is taking it on the chin because of the holdup ... and, as long as the Chinese drag their feet, it makes the company's eventual breakup less likely."

Micron's stock could also take a debilitating hit if U.S.-China relations keep going south because the semiconductor maker gets roughly half of its sales from China, the "Mad Money" host said.

"Maybe the Chinese Communist Party wants to shut down their business in China. Maybe they want to make it harder for them to do business," he said. "Whatever's happening, it sent the stock into free-fall, and that's putting pressure on the entire chip cohort, including Applied Materials, the semiconductor capital equipment maker with a lot of business in China."

Some companies, like Apple, have strong enough relationships with China that stymieing their businesses would mean hurting the Chinese economy, Cramer noted. But he worried that too few U.S. companies have such ties.

"You have to be cognizant that the strongest stocks today were the techs that have no meaningful exposure to China, namely Amazon, Alphabet and Facebook," he said. "Bottom line? As mutual funds dump stocks of companies that trade with the enemy as part of their normal end-of-year selling, they've decided to swap that cash into the highest-growth tech stocks with no Chinese exposure and therefore there's a whole lot of FANG going on."

WATCH: Cramer flags stocks that may drop on China cold war

Disclosure: Cramer's charitable trust owns shares of Apple, Amazon, Alphabet and Facebook.

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