These Are The Biggest Losers If Trade War Breaks Out Between The US And China

Tyler Durden's picture

With China growing increasingly nervous about the prospect of a trade war with the US, the nation's official mouthpiece People's Daily warned that a trade war between China and the United States would harm both countries, reflecting concerns over Trump's stated protectionist, anti-China stance. 

"If a trade war developed between the two countries, both China and the U.S. would be negatively impacted," the newspaper said in a commentary. "In the end neither side would win, it would bring harm to other countries and that harm would be brought to others without benefits to the U.S. or China."

As both China and the U.S. are major players in global supply chains and value chains, numerous countries would be gravely impacted from a trade war, the article added.

"At present, China and the U.S. are bound together by trade, investment, finance and other spheres," the article quoted Zhang Jianping, head of the Research Center for Regional Cooperation under China's Ministry of Commerce, as saying.

"As the two largest economies in the world, maintaining positive trade relations is beneficial both to China and the U.S. and also the global economy."

Trump has pledged to use “every lawful presidential power to remedy trade disputes” with China, including tariffs. He once broached a tax of 45 percent on Chinese imports, then denied bringing it up. After the presidential inauguration Jan. 20, the Global Times, a Chinese newspaper run by the Communist Party, said Trump’s speech signaled a “high possibility” of trade frictions.

Meanwhile, as Bloomberg reported, while it’s still far from clear how any potential trade war plans will shape up under Trump, what is clear is that China will retaliate against any protectionist steps - not only are there reported contingency plans, but the historical example of measures against Japan when tensions flared in 2012. Widespread boycotts of American products in China could hit brands including Nike Inc., General Motors Co., Ford Motor Co. and Tiffany & Co., while U.S. sanctions would put Chinese electronics exporters such as Lenovo Group Ltd. and ZTE Corp. under pressure, according to Credit Suisse Group AG. Domestic competitors stand to gain from diminished commerce.

The MSCI China Index could fall by as much as 30% from current levels if the U.S. and China impose 45% tariffs on each other, according to Jonathan Garner, a Morgan Stanley strategist based in Hong Kong. In the case of more modest 5 percent tariffs, the Chinese index would be little changed from current levels, according to Garner. Last month, Garner was a bull on China shares, seeing the Shanghai Composite rising to as high as 4,400 this year. The gauge rose 0.4 percent to 3,136.78 on Monday. Bocom’s Hong expects the benchmark Shanghai Composite Index to quickly fall below 2,800 under a full-blown trade war scenario -- about a 10 percent slide from current levels. The U.S. S&P 500 index is “too bullish” and has gotten ahead of itself since Trump’s November election, Hong said. In December, he said his model projected the Shanghai benchmark would trade this year in a range 500 points higher or lower than 3,300.

 

“Most people I talk to tend not to think a trade war is the base-case scenario -- they treat it as a black swan event,” Hao Hong, an analyst at Bocom International Holdings Co. based in Hong Kong, said in a phone interview. “I think the possibility is much larger.”

As a result, analysts are already drawing up shortlists of winners and losers from any eruption of tensions between the world’s top two economies.

As Bloomberg adds, from China’s perspective, producers of consumer electronics, apparel and household appliances could be among the biggest victims should trade disputes heat up, thanks to their big revenue exposure to American customers, according to Reto Hess, head of global equity research at Credit Suisse. Companies including wireless technology firm GoerTek Inc. and apparel maker Regina Miracle International Holdings Ltd. earn more than 70 percent of their revenue from the U.S., the most among stocks in the MSCI China and Hong Kong indexes, according to Morgan Stanley.

Semiconductor maker Ambarella Inc. leads American firms in the MSCI U.S. index earning most of their sales from China, according to Morgan Stanley. If Chinese consumers did boycott U.S. brands -- as they did to the Japanese in 2012 over a territorial dispute -- domestic producers such as carmaker BYD Co. and sportswear maker Anta Sports Products Ltd. would benefit, Credit Suisse’s Hess said. Foreign, non-American brands could also win market share as a more attractive third alternative. “Chinese consumers might decide to buy a German instead of a U.S. car, or buy an Adidas shirt instead of a Nike shirt,” Hess said.

Overall, U.S. equities have more to lose than their Chinese counterparts in a trade war, at least in the view of Morgan Stanley’s Garner. While almost 10 percent of companies in the MSCI U.S. index derive at least a tenth of their sales from China, less than 2 percent of firms in China can say the same about the U.S., according to Morgan Stanley.

In a “grand bargain” in which the two sides hug instead of butt heads, Garner sees the biggest beneficiaries being Chinese energy, entertainment, technology and tourism companies, along with U.S. telecommunications and semiconductor businesses.

As Bloomberg concludes, "a positive scenario is hard to envisage for those focused on Trump’s warnings on the campaign trail." For now, the market is clearly pricing in the most positive scenario possible.

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D Nyle's picture

How about Walmart, Amazon and Alibaba

TheVoicesInYourHead's picture

Apple is likely the biggest loser.

sushi's picture

There are a large number of US firms likely to be impacted and not just large Fortune 500 companies.

About 20 years ago Walfart went to each of its suppliers and showed them the price Walfart was able to source an equivalent product from China. This set what became known as the 'China price"

 

US suppliers to Walfart were presented wtih a choice. 

1) They could continue manufactuer in CONUS and accept the resulting high finished product price

OR

2) They could relocate their production facilities to China and produce the same product for the US market while disbanding US production facilities and laying off their workforce.

Given that Walfart had the clear intent of getting the lowest possible product price it was clear that option 1) was not an option and most firms selected option 2)

So any trade war is likely to be extremely disruptive to US firms not to mention causing higher prices for US consumers.

Since it is not possible to relocate production facilities  overnight this period of unsettled trade could impact both countries for a period of 5 years or more.

 

 

IBelieveInMagic's picture

What will happen to Dollar reserve status? Large US trade deficit is a requirement for retaining dollar reserve status. Interesting to see which will Trump choose -- preserving dollar reserve or Make in America? My guess is dollar reserve -- it is too precious.

Stuck on Zero's picture

Was this piece written by the Chinese government? 

divingengineer's picture

Had to be.
I say bring it.
If I turn it over and it says Made in USA, I don't worry about the $.35 extra that it costs.

Miffed Microbiologist's picture

What concerns me is pharmaceuticals. Most medications used today are not manufactured domestically. Even if you don't take meds, surgical supplies could be in tight demand. I would be happy to see us return to domestic production.

Miffed

The Saint's picture

How about showing us a chart of the Trade Gap with China before you start telling us who the winners and losers are going to be.

I tend to think if trade between the U.S. and China ground to a halt, it would be the Chinese who would go into a tailspin.  Not America so much.

Dr Ongo's picture

I think Australia will get hit hard.

Iron ore and Coking Coal will drop.

Plus Oz housing bubble and very high consumer debt.

Biggest Fattest Bug looking for a windscreen.

Nunya Bidness Gogl's picture

Yes, did you read the article? It says so in the first sentence. Jesus Fucking Christ! Can't into reading comprehension? Either one of you?

Chris Dakota's picture
Chris Dakota (not verified) TheVoicesInYourHead Jan 25, 2017 8:23 AM

Bring back manufacturing, if it is expensive that's good.

Nobody needs 5 TVs.

Best for the enviornment build the stuff we used to like a washer that lasts 30 yrs.

z80kid's picture

Precisely.

There are just too many damned problems with Chinese trade - cheap disposable products piling up in our landfills, ridiculous amounts of polution that no US company would be allowed to create, unequal trade terms and violations of trade agreements, intellectual property theft, the fact that they spend the profits on military bullying... and on and on. 

Would it take a few years to get businesses back here? Maybe. Or maybe businesses that never left will rapidly expand to fill the void and the ones that left will be screwed. I can live with that.

opport.knocks's picture

"...the fact that they spend the profits on military bullying..." - bwahhhahahaha

(could you keep a straight face while typing that?) 

photonsoflight's picture

So your saying they have the right to build artificial islands in international waters , then claim the surrounding ocean as it's territory and that is not an aggressive act?

SoilMyselfRotten's picture

Bring back manufacturing, if it is expensive that's good.

 

Sounds good to me too but but the reality is these corporations that greatly enriched themselves paying out 0.20 cents on the dollar for labor overseas will NEVER be able to pay living wages in this country. It would destroy their balance sheets. Are they going to be able to get auto plant workers to work for $9 an hour? Or make a widget for $1.73 an hour? Those jobs are never coming back. 

Posa's picture

VW, Nissan, BMW and others can build cars in the US and make tons of money

Abbie Normal's picture

Strictly speaking, they're just assembling cars in the US from foreign-sourced components.

Luckhasit's picture

Since the US laid claim to Hawaii, we can't say shit to another country that does the same for the same reasons.

neokulak's picture

Ah, more Marcuse "Critical Theory" rhetoric compliments of the Franfurt School of Socialist propaganda.  I'm glad to see you learned well in the Amerikanski public skrewl system.

Posa's picture

The Truth doesn't need help from the Frankfurt School

roddy6667's picture

Your claim is the American propaganda version. Are you aware that there are several sides to the argument? I doubt it. They have never appeared in print in the American press.

Americans think that the North Koreans live an isolated existence and know little about what goes on in other countries, but they are not much different.

Cynicles's picture

Ask what Gaddafi or Saddam think about that.

Posa's picture

The US treats the Gulf and Caribbean , hell the whole Western Hemisphere, like an American Lake...

edotabin's picture

Spoken like a true xenophobe /s

Posa's picture

"Would it take a few years to get businesses back here? Maybe."

Yes. Which is why negotiations are needed for both sides to adjust over a few years, instead of a "war"

 

Retired Guy's picture

Whenever I need electrical or plumbing parts I check Ebay. From China almost everything costs a small fraction of USA stuff. I just ordered a 3D printer with plastic- $200. Bet it comes from China. While I support USA production. The 'problems with Chinese products' arguement doesn't fly with me. Their products are great, especially when considering the price. Let's face it, price parity is not going to be enough by itself to turn this thing around.

whatsupdoc's picture

... and what happens when their products actually become good and sturdy and cheap ??  They only have to make things a bit better in many cases to completely win the argument in my opinion.

Just what does humanity need that they can't provide ?  (I mean really need ...)  There isn't that much.

If there is a real breakdown in relations between nations then any attempts at protecting intellectual property within China will go out the window overnight.  All those products made in China but protected by 'International' law will be intentionally 'open-sourced'.  So any remaining products that the west gets made in China will be up for grabs.  Game over.

 

divingengineer's picture

It's plastic crap.
We had a US made Curtis Mathes TV in the living room the whole time I was growing up.
One TV, for about 20 years. Wood cabinet, nice.

hestroy's picture

Yes, yes, good old 640x480px. THe best picture you can have...

Abbie Normal's picture

We had a similar Electrohome model -- our first big screen (24") color TV in a solid wood cabinet that cost $1025 in 1967.  There's even a photo of us kids standing next to the TV as the first moon landing was broadcasted.  Reliability was another issue as I remember Dad taking the tubes to the repair shop for testing/replacing every year or so.

Silver Bug's picture

America can begin making higher quality products back at home. The days of buying as much cheap, useless garbage SHOULD come to an end. Prices may be higher, but at least things will last more than 2 months, therefore, are they really more expensive in the long run? China will lose Big Leauge.

 

http://jimrickards.blogspot.com/2017/01/james-rickards-end-to-globalism....

Nunya Bidness Gogl's picture

Everyone thinking that the problem of low quality is because things are made in China are missing the point. The Chinese are perfectly capable of mfr quality stuff, they have a space program, advanced military hardware, etc. Are iPhones shit? No they are not, and they are made in China. They make the stuff to the specifications of the customer. In many cases, that customer is an American/multinational corporation, telling them to make low quality shit, so it can be made cheaply, break sooner, so you have to buy another one, sooner. Because the corporations are fucking greedy and short sighted. Next quarter results are all that matter, very few give a shit about their brand name any more (esp those mfr'ing in China). They want to participate in wage arbitrage and get their shit made cheaper, and then sell it back here at American market prices. Lay the blame where it belongs, at the feet of the fucking greedy American / multinational corporations, who think CEOs and other shit heads that do next to nothing should make all the money, whilst everyone who does any actual work should be paid peanuts. There is a deep cancer of greed and shitiness in our own country, but self reflection is hard, it's easier to blame someone else, besides that's the American way now, let's not take responsibility for anything.

CJgipper's picture

No, they don't.  I've taken delivery of items spec'd at 4140 steel and gotten ALUMINUM!!! When you ask WTF is this?!   Their answer, "Aluminum was cheaper".  But they invoiced me for the 4140.  Working with Chinese factories is horrendous.  They will NOT just use what you spec, you've got to hire an American to live in that factory and watch them... every.... single..... day....

Nunya Bidness Gogl's picture

Hmm, interesting. If that's prevalent as you say, I suppose I will need to revise my opinion. Thanks for the data point.

W.M. Worry's picture

Exactly, I was in Sears a couple of years ago looking for a plastic tool box for the boat.  They had 3 options that were the right size one made in China, one in Mexico, and one made in the US. I really wanted to buy US but it was by far the crappier of the lot.

thecondor's picture

China isn't shit without the US. 

dogismycopilot's picture

Paging South Korea. South Korea you have a customer. Sam Walton is on the phone.

Arnold's picture

Very long distance.

Will you accept the charges?

edotabin's picture

This isn't about trade. It is about bringing hundreds of millions of Chinese to rely on banking and debt. Once the banks are firmly entrenched it becomes a way of life.

TheReplacement's picture

Why is it important to trade at all?  What does China have that we cannot produce ourselves?  I would rather American companies pay American workers to produce higher quality American products, which the American people can then buy for their American homes, from American sourced resources.

The average American doesn't need China for anything at all.  Period.  Full stop.

CJgipper's picture

Except sweet and sour chicken/dog.  I love that stuff.

whatsupdoc's picture

Heard of the One Belt, One Road project?  If there is a land link from China to the rest of mainland Asia, Europe and Africa, China most certainly does not need the US !!

new game's picture

and who is the biggest looser? china, so bring it on and let the chips fall to a level that bring this debt sunami crashing china way the fuk moar than usa. 32 trillion of debt. lol. who has moar to loose? fuk china...

not to mention; king dolla will be watching.

AG900's picture

BS, China doesn't need the US so much nowdays, 1.3 billion (+India billion) to buy gadgets. The US factor is quite small (they don't need 300k debtors)  :)

gatorengineer's picture

China doesn't have a middle class, the middle class is what consumes.....

divingengineer's picture

Well they better get one.
And quick.