US-China Trade War: Impacts and Implications

Back in April 2016, while US President Trump was still on the campaign trail, he hosted Chinese President Xi Jinping at his Florida resort to discuss a 100-Day Action Plan on trade disagreements. Then in February 2018, the US imposed 30% tariffs on imported solar panels and 20% on imported washing machines. They followed up with a 25% tariff on steel imports and 10% on aluminium imports that March, negatively influencing offshore trade volumes. China responded with tariffs on 128 US products, ranging from 15% to 25%.

Months of tit-for-tat tariff threats concluded on July 6th with China applying 25% tax on 545 US imports while the US levied 25% on 818 Chinese products. Both countries lodged cases with WTO (World Trade Organisation) and continued to bicker over tariffs. On September 24th, China began its second round of $60 billion anti-US tariffs, upping the overall figure to $110 billion. The US began collecting on its $200 Billion anti-China tariffs, raising overall import taxes to $250 billion at 10%, with a promise to hike it to 25% in the New Year.

Walmart and Target have already taken hits since they primarily source from China. Furniture imports will be next, with 88% coming from China. Profits are expected to dip 20%, and some companies have already suffered stock price diminutions since July 6th:

  •  At Home Group – 25% 
  • Restoration Hardware – 10% 
  • Williams-Sonoma – 3.7% 
  • Lumber Liquidators – 43% 
  • Floor & Decor Holdings – 42%

Walmart Inc. (NYSE: WMT)    (Source: Yahoo Finance)

Target Corporation (NYSE: TGT)     (Source: Yahoo Finance)

US and China are currently the world’s two top economies, so their disputes have a significant impact on  overseas share trading volumes and thus the overall stock market. In July 2018, global growth rates were 3.8%. The trade war is expected to drop that down to 3.6% come 2019. Malaysia – for example – imports 20% of her raw materials from China, so they expect a 0.08% drop in exports and a 0.02% decline in GDP, with a potential loss to her economy of 0.7% by 2020. China’s growth could drop by 1.6% to 2% come 2020, according to IMF (International Monetary Fund). So far, Chinese stocks have experienced a 20% decline.

Meanwhile in the US …

Jay Timmons, the CEO and President of the National Association of Manufacturers (NAM) says they will feel the pinch hardest. With Chinese imports getting too pricy, solar product manufacturer Sungrow began courting India, while Enphase looked to Mexico. The tariffs are therefore expected to hit individual companies, rather than the sector as a whole. Some sources believe the US economy will slow down, with GDP tanking 0.25%. S&P 500 growth rates could fall 2% to 3%. Global oil demand is expected to drop as well.

Shifts are expected to be gradual, according to Janet Kong, BP’s chief executive for Eastern Hemisphere Integrated Supply and Trading. “The trade war impact has not shown up in the data anywhere … so its impact is boiling over slowly.” On December 2nd 2018, both China and the US agreed not to impose further tariffs until March 2019. This will hopefully cushion some of the damage come January 2019.

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