Chinese company profits could become collateral damage in escalating US trade war
Analysts say tit-for-tat levies could disrupt trading patterns and companies not in the affected industries could start to feel the heat
The US$34 billion in tariffs on Chinese goods imposed by the US on Friday could cause collateral damage to profits at Chinese companies not directly in the firing line, as the tariff war disrupts established trade flows.
The initial set of tariffs targeted industrial components, cars and various tech products, while another US$16 billion in tariffs could be enacted soon. China immediately retaliated with tariffs of its own, mainly on US food and agricultural products.
Analysts said the tit-for-tat could hit profits of publicly traded Chinese companies and could spill over to industries beyond just the goods targeted by the US. There is a potential for damage to shipping, aviation, ports and farming in China and even in emerging Asian markets.
“Intensifying trade frictions can directly dent China’s exports and [hurt a broader economy] by weakening domestic demand indirectly,” Wang Hanfeng and Zhou Changjie, analysts at investment bank China International Capital Corp (CICC), said in a research note.
In the best-case scenario, impacted Chinese companies, excluding financials, could see their profit growth slow to a range of 10 per cent to 14 per cent in the next 12 months, according to CICC. That would be down from a previously forecast rate of 16 per cent to 28 per cent.
The initial impact of the tariffs may not significantly hurt China’s economy – the People’s Bank of China, the country’s central bank, sees it as subtracting about 0.2 per cent from gross domestic product growth.
But should US President Donald Trump go ahead with a threat to target as much as US$400 billion in goods if China retaliates, profit growth could slump to 1 per cent at some Chinese companies, according to CICC.
