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The Narrow Scope of US Tariffs on China

The Narrow Scope of US Tariffs on China

Thoughts on the Market vor 2 Jahren

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Our Global Head of Fixed Income and Thematic Research explains
that the Biden administration’s new tariffs on Chinese imports
are narrower than those of 2018 and 2019, but still send a signal
about the economic relationship between the US and China.

----- Transcript -----

Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan
Stanley's Global Head of Fixed Income and Thematic Research.
Along with my colleagues bringing you a variety of perspectives,
today I'll be talking about the impact of newly announced tariffs
by the United States.

It's Wednesday, May 15th at 10:30am in New York.

Yesterday, the Biden administration announced new tariffs on the
import of certain goods from China. These include
semiconductors, batteries, solar cells and critical minerals
among other products. For investors, this might remind them of
the tariff escalation in 2018 and 2019 that led to global
economic concerns. But we’d caution investors not to arrive at
similar conclusions from this latest action.

Consider that the scope of this action is far more muted than the
tariffs actions from a few years ago. New tariffs will affect a
projected $18 billion of imports, or only about 0.5 percent of
all China’s exports. And as our chief Asia economist Chetan
Ahya has explained in his recent work, the sectors in scope for
this round are areas where China has substantial spare capacity.
Said differently, the tariffs are narrowly scoped and appear to
be targeted at areas where the US perceives specific risk of
imbalanced trade and market conditions. That contrasts with
tariffs on roughly $360 billion of imports from China in the
2018-2019 period – a much broader approach that was in part aimed
at forcing broad trade concessions from China but carried greater
economic consequences by crimping corporate’s capital spending
globally as they re-evaluated their production strategies.

There is some signal for investors here though. While the scope
of the Biden administration's efforts here are more narrow, it
does signal something we’ve known for a few years now. There’s
continuity across presidential administrations and across
political parties in the US on the topic of the economic
relationship with China. While each party has different tactics,
there’s clear overlap in their goals, in particular on the idea
that the US must continue taking steps to protect critical and
emerging technologies in order to preserve its economic and
national security.

This suggests that the laws of gravity won’t apply to US tariffs
any time soon, regardless of the US election outcome. So,
the rewiring of the global economy in the emerging multipolar
world will continue, and investors can still focus on some key
regional beneficiaries of this secular trend – namely Mexico,
India, and Japan.

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