November 18, 2019

Chart of the Week: US and China seek trade reprieve, but questions remain

by Fathom Consulting.

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Since 2018, the effective tariff rate on US imports from China and vice versa has steadily increased, resulting in a reduction in economic links. According to Chinese figures, gross imports and exports between the world’s two largest economies totalled $556 billion in the twelve months to October. That was down from a figure of $642 billion in the twelve months to October 2018, and below the October 2015 figure as well. Moreover, trade tensions have coincided with a notable slowdown in the economic growth rates of both countries and uncertainty around the future trading relationship has had an impact on asset prices. Fathom’s China Exposure Index, which tracks the relative stock market performance of US-listed firms with significant revenue exposure to China, has tended to ebb and flow with developments surrounding Sino–US trade talks. Signs of recent progress towards a so-called ’Phase 1’ deal have boosted the equity prices of these firms, and supported risk assets more generally. Nevertheless, the mooted agreement is more likely to prevent a further escalation in tariff rates, rather than return the trading relationship to the old normal. Indeed, Sino–US relations have entered an era of strategic competition. Investors will have to adjust.

Refinitiv is partnering with Fathom Consulting, experts in global macroeconomics, geopolitics and financial markets, to present a webinar “The U.S. and China: Superpowers On The World Stage” on November 21, 2019 at 11.00 AM EST | 8:00 AM PST. Register here to join the complimentary webinar.

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