The recent escalation in US-China trade tensions, marked by the imposition of significant tariffs on Chinese electric vehicles (EVs) and a subsequent Chinese anti-dumping probe, signals the potential onset of a renewed trade war between the world’s two largest economies.
The news builds on President Joe Biden’s calls last month to extend tariffs on Chinese steel and aluminum. And it comes as the incumbent and his opponent, Donald Trump, are both vying to be seen as tough on China ahead of the US election in November.
This development could have profound implications for global trade, economic stability and investment strategies. As the economic superpowers engage in tit-for-tat measures, global investors face an increasing set of complexities to protect their investments and seize emerging opportunities.
The current situation harks back to the trade tensions that characterized US-China relations during the Trump administration, which saw the imposition of tariffs on hundreds of billions of dollars worth of goods.
The recent measures by the Biden administration to increase tariffs on Chinese EVs from 27.5% to 100%, alongside tariffs on other Chinese imports, are a response to what the White House describes as China’s unfair trade practices.
Specifically, the US accuses China of flooding global markets with artificially low-priced exports, which in turn undermines American industries.
China’s retaliatory move to launch an anti-dumping probe into polyoxymethylene (POM) copolymers, essential in various industries from automotive to electronics, underscores the tit-for-tat nature of the trade disputes.
The broad inclusion of other regions such as the European Union, Taiwan and Japan in this probe indicates that China is widening its defensive measures beyond just the US, potentially leading to a more fragmented global trade environment.
Heightened trade tensions typically lead to increased market volatility as well as shifts in currency values as countries adjust their monetary policies in response to tariffs.
Investors should thus be prepared for short-term fluctuations as markets react to the evolving trade policies and also consider hedging strategies to mitigate risks.
With tariffs on Chinese EVs set to soar, companies within the automotive sector can be expected to face higher costs and supply chain disruptions. As a result, we would urge investors to scrutinize automotive stocks, particularly those heavily reliant on Chinese imports or exports.
In addition, the anti-dumping probe into POM copolymers will impact tech manufacturers reliant on these materials. Companies in the tech sector are therefore likely to experience increased costs, affecting their profit margins and stock performance.
Naturally, firms affected will seek to diversify their supply chains to reduce dependence on Chinese imports. These are the companies that we expect might be better positioned to withstand trade disruptions.
Plus, there is likely going to be a trend toward nearshoring or onshoring production to mitigate risks associated with international trade conflicts, with investors exploring opportunities in regions benefiting from these shifts such as Southeast Asia or Mexico.
As global supply chains reconfigure, emerging markets outside of China may see increased investment and growth opportunities. Countries like Vietnam, India and Indonesia can be expected to become more attractive investment destinations.
Investor focus, as always, should be on quality and resilience. Invest in well-established companies with strong balance sheets and robust business models. These companies are typically better equipped to handle economic disruptions.
Also consider sectors that are less exposed to international trade fluctuations, such as healthcare, utilities and consumer staples.
The potential for a renewed trade war between the US and China presents both challenges and opportunities for global investors. While short-term market volatility is likely, strategic positioning can help safeguard investments and capitalize on new growth avenues.
Nigel Green is founder and CEO of deVere Group