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Chad Bray

Maggie Zhang

Laura He

Enoch Yiu

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.
China hits retaliation button, launching tariffs as trade war with US starts
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.

Anticipation of the US tariffs has weighed heavily on stock markets in Hong Kong and China for several days, with the Shanghai Composite Index – mainland China’s benchmark stock index, and the Hang Seng China Enterprises Index, which tracks Hong Kong-listed Chinese companies, both entering bear market territory last week.
On Friday, the Shanghai Composite Index hit a 28-month low in trading on Friday, before rebounding to close 0.5 per cent higher.
Investment managers meanwhile are approaching the latest escalation in trade tensions between the United States and China with caution, but are not broadly pulling back from the markets even as retail investors react to the tariffs.
US tariffs take aim at Made in China 2025 plans in first salvoes of trade war
Eleanor Wan, chief executive of BEA Union Investment Management, a joint venture between Bank of East Asia and Germany’s Union Investment, said investors had been in “panic mode” recently.
“I think the market has overreacted a bit,” Wan said. “The rapid worsening of sentiment is mostly due to people’s lack of clarity about how things are going on about the trade issue between China and the US, or between the US and its trade partners. Any progress in the negotiations? Not yet known. That’s where the fear comes from. As more information comes out and people have a clearer picture about the progress, I think the market will calm down.”




The drop in Chinese stocks could present good buying opportunities for some specific sectors,” she said.
Other analysts noted that there was a difference between news headlines on the trade war and the reality of the tariffs on the ground, something for investors to bear in mind.
And you thought China is the only country Trump has gone to war with?
“The current US tariffs affect less than 1 per cent of China’s total exports, meaning that the direct impact is probably less than this week’s market sell-off suggests,” said Jing Ning, portfolio manager at Fidelity Funds’ China Focus Fund.
That said, if the amount of goods facing tariffs increased dramatically, “all bets would be off,” said John Woods, chief investment officer for the Asia-Pacific at Credit Suisse, who noted that politics may also have a role to play in the dispute.
“I notice that Trump’s approval ratings have increased coincidentally with the trade war on China and I suspect similarly if we were to see indications of deferred capital expenditure or companies relocating away from the US, we would see a prompt reappraisal of the trade dispute,” he said.
Additional reporting Enoch Yiu


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Beijing strikes back! China puts tariffs on US$50 billion of US goods after Donald Trump kicked off trade war

China’s Finance Ministry has imposed an additional 25 per cent tariff on some US$50 billion of US imports and said the US has invalidated recent high-level talks aimed at averting a trade war

FILE PHOTO: Flags of U.S. and China are placed for a meeting between Secretary of Agriculture Sonny Perdue and China's Minister of Agriculture Han Changfu at the Ministry of Agriculture in Beijing, China June 30, 2017. REUTERS/Jason Lee/File Photo

NEW YORK, NY - JUNE 15: Traders and financial professionals work ahead of the closing bell on the floor of the New York Stock Exchange (NYSE), June 15, 2018 in New York City. On Friday, the Trump administration stated it will move ahead with tariffs on $50 billion of Chinese imports, prompting the Chinese government to announce retaliatory tariffs on $34 billion worth of American goods, including agriculture products. With trade war fears looming again, the Dow fell more than 280 points in the morning but bounced back to finish the day down 85 points. Drew Angerer/Getty Images/AFP == FOR NEWSPAPERS, INTERNET, TELCOS & TELEVISION USE ONLY ==

Robert Lighthizer, U.S. trade representative, testifies during a Senate Finance Committee hearing on Capitol Hill in Washington, D.C., U.S. on Thursday, March 22, 2018. The U.S. will shield a list of allies including Europe, Australia, South Korea, Argentina and Brazil from steel and aluminum tariffs that take effect on Friday, according to Lighthizer. Photographer: Joshua Roberts/Bloomberg

DWIGHT, IL - JUNE 13: Farmer John Duffy loads soybeans from his grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. Scott Olson/Getty Images/AFP == FOR NEWSPAPERS, INTERNET, TELCOS & TELEVISION USE ONLY ==

FILE PHOTO: A container truck moves past containers at the Yangshan Deep Water Port in Shanghai, China April 24, 2018. REUTERS/Aly Song/File Photo

US President Donald Trump’s latest move threatens to ratchet up trade conflicts between the world's two largest economies. Photo: AFP

China accuses US of igniting trade war with tariffs but there could be more talks ahead

Xi Jinping and Donald Trump meet in November in Beijing. China hit back hours after the US slapped punitive tariffs on US$50 billion of Chinese products on Friday. Photo: Kyodo

(FILES) This file photo taken on April 9, 2018 shows workers transferring soybeans at a port in Nantong in China's eastern Jiangsu province. China on June 15 swiftly retaliated by imposing "equal" tariffs on US products following a decision by US President Donald Trump to slap duties on 50 billion USD of Chinese products. / AFP PHOTO / - / China OUT

RICHMOND, CA - MAY 24: Brand new cars sit in a lot at the Auto Warehousing Company near the Port of Richmond on May 24, 2018 in Richmond, California. U.S. president Donald Trump is threatening to impose heavy tariffs on auto imports and has directed Commerce secretary Wilbur Ross to look into and determine if auto imports could be considered a national security threat and if it would be possible to bypass congress and take unilateral action under section 232 of the Trade Expansion Act of 1962. Justin Sullivan/Getty Images/AFP == FOR NEWSPAPERS, INTERNET, TELCOS & TELEVISION USE ONLY ==

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