Fears about trade:Areas of tension,macro sensitivities/scenarios,historical lessons,and equity trading strategies

1. Why is trade important? It made up 55%/40% ofglobal/China’s GDP last year. US trade relations withChina have deepened since the 2000s. A ‘trade war’ willalso impact global growth and geopolitics, in our view.

2. Gauging the frictions? China is subject to a 3% tariff,the highest among major US trading partners (1.5% onaverage), and accounted for one-third of all US antidumpingcases since 2015.

3. What will the US do? Tariffs, dumping charges, FXmanipulator, and border taxes are commonly-discussedmeasures but with different likelihood and implications.

Our economists estimate that a 45% tariff on Chineseimports could directly hit China’s nominal GDP by 0.6%.

What could be affected? Chinese 4. industries whichoften receive US trade complaints, with high tradeimbalances and low tariff rates—metals, chemicals,electronics, textile, furniture—are likely targets.

5. FX manipulator label? Limited immediate impact butwas commonly used in trade/FX negotiations as shownby Asian countries’ experiences in the 80s/90s.

6. Lessons from Japan in the 80s? Tariffs had modestimpact until the Plaza Accord was signed, whichushered in manufacturing offshoring, supply-chainupgrade, and export diversification for Japanese firms.

7. Beijing’s policy responses? Selling US treasuries,retaliatory tariffs, weaker Rmb, administrative measureson travel/education, stricter anti-trust enforcement, andODI/M&A restrictions are possible options.

8. Equity implications? Modest revenue impact (US sales~1%) but the tail risk is indiscriminately priced in amongUS-exposed themes: We screen for firms with USassets, hedged by exporters and ODMs/OEMs.