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• Uneven tariff rates and the banning of some US goods
• Intellectual property theft
• Forced technology transfer
• Strategic US technology acquisitions
• Outright cyber theft
• Foreign ownership restrictions

Recent headlines that the trade war may be escalating to a cold war are not without merit, as we believe that US-China relations are changing on a more structural basis and will have a longer-term impact. On a short-term basis, however, US exposure to China is limited with merchandise exports, corporate profits and foreign claims at about 1% of GDP. As seen in Exhibit 7, the Chinese equity markets have also deteriorated much more significantly than US markets in 2018.

Of course, specific stocks with greater exposure to China through higher sales have underperformed the S&P 500 by about 6% since the latest tariffs were imposed on $200bn of Chinese products, as shown in Exhibit 8.

7. Impact of 2018 US Trade Actions on Equity Markets – Through October 12, 2018

[Y-Axis Label]: Price Indexed to 12/31/2017
115
110
105
100
95
90
85
80
75
70

[Chart Annotations]:
1/22: solar panels & washing machines tariffed
3/8: steel & aluminum tariffs announced
3/22: tariffs on $50bn of Chinese goods announced
3/23: US implements metal tariffs on China, which retaliates
5/23: investigation into tariffs on auto imports announced
5/29: US confirms tariffs on $50bn will be implemented
6/18: tariffs on additional $200bn of Chinese goods announced
7/6: US implements $34bn (of $50bn) sanctions on China, which retaliates
7/31: US considers 25% rather than 10% tariffs on $200bn
9/24: US imposes 10% tariffs on $200bn, China retaliates

[Data Points]:
103.4
72.0

[Legend]:
— S&P 500
— China A Shares

[X-Axis Label]:
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18

Source: Investment Strategy Group, Bloomberg.

8

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