U.S. Donald Trump ratcheted up a trade war with China even as he did an about turn on steep new reciprocal tariffs on most trading partners on Wednesday.
Trump hiked the tariff on Chinese imports to 125% from the 104% level that kicked in on Wednesday.
Beijing may again respond in kind after slapping 84% tariffs on U.S. imports on Wednesday to match Trump’s earlier tariff salvo. It has repeatedly vowed to “fight to the end” in the escalating trade war between the world’s top two economies.
MARKET REACTION: The blue-chip CSI 300 Index and Hong Kong’s Hang Seng Index both traded higher, in anticipation of domestic policy stimulus to offset tariffs and state-driven buying of stocks.
COMMENTS:
“Right now, it’s mainly a technical rebound. Obviously, Trump backed down yesterday. At the same time, he also expressed openness to negotiate with China. On China’s side, it’s very clear that we have a lot of confidence this time. Whether it’s the announcement of retaliation or the deployment of policies, it’s actually all been well-prepared in advance.
“After seven years of experience since 2018, the proportion of U.S. in China’s total exports has significantly decreased. So, we’re no longer as passive as we were back then. I think this rebound will continue for a while.”
“The volatility is not over, the environment remains uncertain and some of the impacts are irreversible.
“The discussions with China now appear to be more protracted than initial expectations – we have not reduced China given that we are seeing a more fundamental improvement and there are many levers that China can use in mitigation.
“We are generally neutral weight. We only like two areas in China – cheap high growth China internet names and high yield state-owned enterprise (SOE) attractively valued names.”
“Trump’s wanton policies will inevitably face internal and external pressure, so they’re not sustainable. Higher tariffs won’t address issues such as the trade deficit, the manufacturing sector’s hollowing out, and government debt problems. Instead, it will trigger U.S. economic recession, and dent U.S. sovereign creditability.
“China stocks have limited room to fall, as valuations are relatively low, and China has in recent years reduced economic reliance on the U.S., contained property risks, upgraded manufacturing and made technological breakthroughs.”
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