US President Joe Biden’s reported fresh China tariffs will trigger short-term market volatility, warns the CEO of one of the world’s largest independent financial advisory and asset management organizations.
The warning from deVere Group’s Nigel Green comes as various media outlets, including Bloomberg which first broke the story, are reporting that Biden is set to announce new tariffs on China as soon as next Tuesday targeting strategic sectors including electric vehicles, semiconductors and solar equipment, according to two people familiar with the matter.
Existing levies are expected to also be maintained. The news builds on the President’s calls last month to extend tariffs on Chinese steel and aluminium.
Nigel Green comments: “The imposition of tariffs on these critical sectors signals a potential disruption to global supply chains.
“Companies heavily reliant on imports from China for components like batteries and solar cells are likely to face increased costs, impacting their profit margins.
“This uncertainty can be expected to lead to a knee-jerk sell-off in stocks of companies directly involved in these industries, such as green-tech, as investors seek to mitigate risk.”
He continues: “In addition, China will retaliate – as it did when Trump imposed tariffs and it hit back with levies on US agricultural goods.
“This adds another layer of uncertainty to the equation – which markets loathe – therefore increasing the likelihood of turbulence.”
In the longer term, Chinese companies, faced with the prospect of increased tariffs on their exports to the US, are likely to explore alternative strategies to mitigate the impact.
One such strategy involves exporting their products to third-party countries not affected by the tariffs before re-exporting them to the US. This tactic, known as transshipment or tariff engineering, allows Chinese firms to circumvent the tariffs by exploiting loopholes in trade regulations.
“The use of workarounds by Chinese companies may exacerbate tensions between Washington and Beijing, potentially leading to further escalations in trade disputes,” says the deVere Group CEO.
“Should the US government become aware of such tactics, it may respond by imposing additional measures to close loopholes and strengthen enforcement mechanisms.
“This tit-for-tat cycle of retaliatory actions and countermeasures could further unsettle financial markets and undermine investor confidence in the stability of global trade relations.”
Biden said last month that the US is standing up to China’s “unfair economic practices and industrial overcapacity…I’m not looking for a fight with China. I’m looking for competition, but fair competition.”
The comments come as the incumbent and his opponent, Donald Trump, are both vying to be seen as tough on China ahead of the US election in November.
Nigel Green concludes: “The reports of new US tariffs on China, targeting strategic sectors is likely to cause short-term market volatility as investors digest the news and assess its wider implications.
“Should this come to pass, we would be surprised if this is not the start of a renewed trade war between the world’s two largest economies.”
By George Prior, deVere Group
