Chinese exports to the US are a small and declining share of China’s GDP, about half the proportion of ten years ago. We have yet to see so-called ‘second order’ effects from the implementation of tariffs, by which we mean a negative impact on business and consumer confidence and, in turn, business and consumer spending. Tariffs will have a modest negative impact on US growth and a modest upward impact on US inflation. Considering the strong performance of the US economy, the overall impact should be relatively small.
Past performance should not be seen as an indication of future performance. Stock market and currency movements mean the value of, and income from, investments in the strategy are not guaranteed. They can go down as well as up and you may not get back the amount you invest.
Basket performance vs. local index
Chinese exports to the US rose strongly after it joined the World Trade Organisation in late 2001 but have been falling since 2006 and are now less than 4% of GDP. In terms of value added, the share is even lower as these data include imported components. Following the Trump tariffs, Chinese exports to the US are set to fall markedly particularly if, as we expect, the rate is increased to 25% on 1 January 2019. But the result is likely to be a diversion of the source of US imports from China to other countries. South Korea or Japan could provide more high-tech goods while labour-intensive products could be sourced from Vietnam or Mexico. In addition, Chinese exports outside the US would increase. There would be some job creation in the US but this is likely to be limited and offset by lower production by US companies facing higher input costs due to the tariffs.