Week in review
- U.S. trade deficit narrowed to -$122.7bn for February
- U.S. March ADP private payrolls beat expectations at 155K
- China Caixin services PMI at 51.9 in March, a three-month high
Week ahead
- China CPI
- U.S. CPI
- U.S. consumer sentiment
Thought of the week
The reciprocal tariffs announced on April 2nd were considerably higher than markets expected. While President Trump did not single out China as he did in his last administration, the chart below shows that China still accounts for a sizable portion of U.S. tariff revenue. The 34% reciprocal tariff, on top of the recent 20% hike, added to the existing ~11% tariff rate prior to President Trump’s inauguration, would bring the final U.S. tariff rate on Chinese imports to ~65%. Various forecasts put the real GDP impact on China at ~2pp for a 60% increase in U.S. tariff rates, so the impact from the current escalation will likely be just shy of 2pp. Apart from the direct reduction in exports to the U.S., Chinese exporters will likely struggle with transshipments through ASEAN, unlike post-2018 trade tension, given high U.S. tariff rates on those countries now. Moreover, a slowdown in global growth from the broad tariffs will also reduce overall demand for Chinese exports. While the Chinese government will likely retaliate symbolically like the previous 2 tariff hikes, language in President Trump’s executive orders do leave room for negotiations. Ultimately, domestic policy easing is more and more urgent and important to support growth amidst external risks. So far, Q1 macro data has beaten expectations, and Chinese equities have been relatively resilient due to the AI theme. The upcoming Q1 GDP report and April Politburo meeting will likely provide more clues on the outlook.
Average tariff rate before and after the Trump administration’s tariffs
Tariff rate on U.S. goods imports for consumption*
Source: Goldman Sachs Investment Research, Tax Foundation, U.S. Department of Commerce, United States International Trade Commission, J.P. Morgan Asset Management. *Imports for consumption: goods brought into an economy for direct use or sale in the domestic market. This does not include goods admitted into bonded warehouses or foreign trade zones. The data above incorporates all current official revisions for 2010-2020 as of July 2021. Forecasts are based on current data and assumptions about future economic conditions. Actual results may differ materially due to changes in economic, market and other conditions. Data reflect most recently available as of 03/04/25.
Market data
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All returns in local currency unless stated otherwise.
Currencies’ return are based on foreign currencies per U.S. dollar. An appreciation of the foreign currency against the U.S. dollar would be positive and a depreciation of the foreign currency against the U.S. dollar would be negative.