Featured Article: Risk of US-China trade tensions 2.0: How can this time be different?
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Introduction: Since 2018, escalating US-China trade tensions have disrupted global supply chains and reshaped economic interdependence. In this article we analyse outperforming industries, changes and investment opportunities in China’s onshore and offshore equity markets, through our FTSE China A50 and FTSE China 50 indices.
US-China trade tensions since 2018 and the subsequent tariff increases have affected the interdependence between China and the US. As a result, both the US’s share in China’s exports and China’s share in US imports declined as a result. This derisking trend has persisted ever since. Tariff imposition remained while trade and investment disputes continued during Biden’s administration. As Exhibit 1 in the article shows, the US’s share in China’s total exports fell further from 29% in 2018 to 21% in 2023. Likewise, China’s share in US total imports dropped from 22% in 2018 to 14% in 2023.
The trade dependence between China and the US has been declining, and should the US impose up to a 60% tariff on imports from China during President Trump’s next Administration, the trend could dampen further. This trend not only causes shifts in overall international trade and global supply chains from an economic perspective but also impacts individual industries. In the sections below, we delve into the impacts on industries in terms of both international trade and equity markets.
Which sectors are most at risk?
To begin with, we breakdown China’s exports to US and US’s imports from China by commodities, to see what products these two countries have higher dependency on each other. These products could be negatively impacted if extra tariffs are imposed.
As shown in our chart within the article, products such as furniture, toys, sports requisites, footwear, and headwear are trade goods that China and the US rely on each other for the most. These types of products could not only hurt China's exports but also cause potential reinflation in the US if tariffs are imposed. The US would need to source these products elsewhere or produce them domestically, which can be more costly. Among China's total exports of miscellaneous manufactured goods (including furniture, toys, games, and sports requisites), 28% were shipped to the US in the full year of 2023. 48% of the total miscellaneous manufactured goods that the US imported were from China.
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Key highlights:
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