China and the US have agreed a ‘Phase 1’ trade deal which will be signed on 15 January. Under the terms of the deal the US did not implement tariffs scheduled for 15 December and reduced the rate applied on goods that were tariffed in September from 15% to 7.5%. China, meanwhile, has promised to buy more US agricultural goods and to better protect intellectual property rights. However, around $250 billion worth of US imports from China remain subject to tariffs at a 25% rate. The effective tariff rate will be close to 20% even after the ‘Phase 1’ deal, up from around 3% before President Trump took office. In our view, the next round of talks will be much more difficult regardless of whoever is in the Oval Office next January. Fathom’s China Exposure Index (CEI) is a proprietary indicator that measures the performance of US-listed firms that do business in China against their domestic peers and as such represents a market-implied gauge of investors’ perceptions about the prospects for US firms doing business in China. Despite the deterioration in trade relations it is above the level it was at in November 2016 and in fact rallied through 2019.
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