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US tariffs to have limited impact on China: Matthews Asia

US tariffs to have limited impact on China: Matthews Asia

The US’ potential import tariff on China would be significant, but the impact on the Chinese economy would be much lighter than most people expect. That’s the view of Andy Rothman, investment strategist at Matthews Asia.

‘If Trump were to apply a broad 15% tariff on imports from China—the highest rate permitted under US law on an emergency basis—the impact on the Chinese economy would be significant, but it would be much lighter than most people expect, because China is no longer an export-led economy,’ said Rothman.

Last year, domestic consumption accounted for two-thirds of China’s economic growth.

‘Moreover, only about 18% of China’s exports go to the US, while Europe, Japan and Asean countries combined take more than a one-third share, limiting the impact of any new barriers to the American market.’

Potential issues

The US president Donald Trump’s policy U-turns regarding China has improved investor sentiment towards the country, which accounts for about one-third of global economic growth, Rothman has said.

However, several issues could possibly led Trump to revert to the China bashing rhetoric of his campaign.

‘For instance, disagreements with president Xi Jinping over dealing with North Korea could fuel retaliation on economic issues,’ he said.

‘Another potential problem could be lack of progress towards reducing the bilateral trade deficit by July 16, the end of the 100-day period agreed to by the two presidents during their summit.’

PBoC policy

On central bank policy front, Rothman said a healthy start to the year has provided the People’s Bank of China with an opportunity to tighten monetary policy a bit, but their objective is to reduce liquidity and speculation in the bond market rather than to rein in economic growth.

'Furthermore, in February, the PBoC and regulators for the banking, insurance and securities sectors jointly published new draft regulations to further address risk in wealth management products,’ he said.

In general, Rothman said that China remains the world’s best consumption story, despite some year-on-year growth rates continue to decelerate; corporate earnings trending up and concerns about trade tensions with the Trump administration trending down as mentioned above; and steady growth provides Beijing with an opportunity to focus on reducing financial sector risks.

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