“If a trade war developed between the two countries, both China and the U.S. would be negatively impacted,” the newspaper said in a commentary. “In the end neither side would win, it would bring harm to other countries and that harm would be brought to others without benefits to the U.S. or China.”
As both China and the U.S. are major players in global supply chains and value chains, numerous countries would be gravely impacted from a trade war, the article added.
“At present, China and the U.S. are bound together by trade, investment, finance and other spheres,” the article quoted Zhang Jianping, head of the Research Center for Regional Cooperation under China’s Ministry of Commerce, as saying.
“As the two largest economies in the world, maintaining positive trade relations is beneficial both to China and the U.S. and also the global economy.”
Trump has pledged to use “every lawful presidential power to remedy trade disputes” with China, including tariffs. He once broached a tax of 45 percent on Chinese imports, then denied bringing it up. After the presidential inauguration Jan. 20, the Global Times, a Chinese newspaper run by the Communist Party, said Trump’s speech signaled a “high possibility” of trade frictions.
Meanwhile, as Bloomberg reported, while it’s still far from clear how any potential trade war plans will shape up under Trump, what is clear is that China will retaliate against any protectionist steps – not only are there reported contingency plans, but the historical example of measures against Japan when tensions flared in 2012. Widespread boycotts of American products in China could hit brands including Nike Inc., General Motors Co., Ford Motor Co. and Tiffany & Co., while U.S. sanctions would put Chinese electronics exporters such as Lenovo Group Ltd. and ZTE Corp. under pressure, according to Credit Suisse Group AG. Domestic competitors stand to gain from diminished commerce.
The MSCI China Index could fall by as much as 30% from current levels if the U.S. and China impose 45% tariffs on each other, according to Jonathan Garner, a Morgan Stanley strategist based in Hong Kong. In the case of more modest 5 percent tariffs, the Chinese index would be little changed from current levels, according to Garner. Last month, Garner was a bull on China shares, seeing the Shanghai Composite rising to as high as 4,400 this year. The gauge rose 0.4 percent to 3,136.78 on Monday. Bocom’s Hong expects the benchmark Shanghai Composite Index to quickly fall below 2,800 under a full-blown trade war scenario — about a 10 percent slide from current levels. The U.S. S&P 500 index is “too bullish” and has gotten ahead of itself since Trump’s November election, Hong said. In December, he said his model projected the Shanghai benchmark would trade this year in a range 500 points higher or lower than 3,300.
“Most people I talk to tend not to think a trade war is the base-case scenario — they treat it as a black swan event,” Hao Hong, an analyst at Bocom International Holdings Co. based in Hong Kong, said in a phone interview. “I think the possibility is much larger.”
As a result, analysts are already drawing up shortlists of winners and losers from any eruption of tensions between the world’s top two economies.
As Bloomberg adds, from China’s perspective, producers of consumer electronics, apparel and household appliances could be among the biggest victims should trade disputes heat up, thanks to their big revenue exposure to American customers, according to Reto Hess, head of global equity research at Credit Suisse. Companies including wireless technology firm GoerTek Inc. and apparel maker Regina Miracle International Holdings Ltd. earn more than 70 percent of their revenue from the U.S., the most among stocks in the MSCI China and Hong Kong indexes, according to Morgan Stanley.
Semiconductor maker Ambarella Inc. leads American firms in the MSCI U.S. index earning most of their sales from China, according to Morgan Stanley. If Chinese consumers did boycott U.S. brands — as they did to the Japanese in 2012 over a territorial dispute — domestic producers such as carmaker BYD Co. and sportswear maker Anta Sports Products Ltd. would benefit, Credit Suisse’s Hess said. Foreign, non-American brands could also win market share as a more attractive third alternative. “Chinese consumers might decide to buy a German instead of a U.S. car, or buy an Adidas shirt instead of a Nike shirt,” Hess said.
Overall, U.S. equities have more to lose than their Chinese counterparts in a trade war, at least in the view of Morgan Stanley’s Garner. While almost 10 percent of companies in the MSCI U.S. index derive at least a tenth of their sales from China, less than 2 percent of firms in China can say the same about the U.S., according to Morgan Stanley.
In a “grand bargain” in which the two sides hug instead of butt heads, Garner sees the biggest beneficiaries being Chinese energy, entertainment, technology and tourism companies, along with U.S. telecommunications and semiconductor businesses.
As Bloomberg concludes, “a positive scenario is hard to envisage for those focused on Trump’s warnings on the campaign trail.” For now, the market is clearly pricing in the most positive scenario possible.
The iShares MSCI China Index Fund (NASDAQ:MCHI) was trading at $47.11 per share on Wednesday morning, up $0.14 (+0.30%). Year-to-date, MCHI has gained 7.73%, versus a 2.35% rise in the benchmark S&P 500 index during the same period.
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