• Video
  • US-China Trade to 'Plummet' if High Tariffs Remain, Goldman's Shan Says

US-China Trade to 'Plummet' if High Tariffs Remain, Goldman's Shan Says

Show Transcript
Bloomberg Mercury Apr 10 18:09 · 31.6k Views

Chinese policymakers are "calibrating the situation" and weighing their options for responding to the latest US tariffs, Goldman Sachs' Hui Shan tells Bloomberg TV. While the potential hit to the economy could be as high as 3% of China's GDP, Shan says it is "plausible" that China could still offset the immediate impact on its US exports by relying on other markets.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more

Transcript

  • 00:00 Policy makers are,
  • 00:02 I think they are also calibrating the situation.
  • 00:05 This is the new to us as a new to,
  • 00:08 you know, policy makers as well.
  • 00:10 I think at this juncture
  • 00:13 it's really hard to say what,
  • 00:15 you know, both sides are going to do.
  • 00:16 What we know is that tariff rates are extremely high and trade, bilateral trade is likely to
  • 00:23 plummet if this is the level of tariff we're going to see in the foreseeable future.
  • 00:29 We actually did some analysis looking at who is more reliant on whom.
  • 00:33 If you have this high tariff, it we look at, you know, over 20,000 products
  • 00:39 and we find that
  • 00:41 US is more reliant on Chinese goods
  • 00:43 because in all the US imports of Chinese products, 1/3 of them
  • 00:48 China's market shares are more than 70%.
  • 00:51 Meaning
  • 00:52 even if you want to find alternative supplier, it's very hard to do that.
  • 00:56 Whereas in China,
  • 00:58 only 10% of the products trying to import from the US,
  • 01:01 where US is dominant supplier.
  • 01:03 So
  • 01:04 we'll see, both sides are going to feel some pain if such elevated levels of tariffs stay,
  • 01:10 but we'll see what happens next.
  • 01:12 Yeah, I can't even imagine how you do your job right now, right.
  • 01:15 The parameters and
  • 01:16 assumptions
  • 01:18 are swinging between extremes almost on an hourly basis.
  • 01:22 So given what we know right now, let's assume this is the worst case triple digit tariffs.
  • 01:26 What's the hit to growth in China?
  • 01:29 So when you look at the tariff rates, it's not a linear relationship, right?
  • 01:32 If I add
  • 01:34 another 1000% tariff on
  • 01:36 our 2000% tariff that has no impact whatsoever, trade will just stop.
  • 01:41 When we look at the non linear relationship, what we find the first,
  • 01:47 let's say 50% tariff on Chinese products
  • 01:50 is going to weigh on China GDP level by about 1 1/2 percentage points.
  • 01:55 It's a sizable
  • 01:56 the 2nd 50% that goes down to below 1%
  • 02:00 if you add Furthermore, it's getting smaller and smaller and eventually converts to about 3% of GDP because that's the size of
  • 02:08 US bound exports as share of China GDP.
  • 02:11 Yeah, I think you, you were saying it was .9% I think for for the next 50.
  • 02:15 So
  • 02:16 what I'm wondering though is, is
  • 02:19 it's not just the relationship or the trade relationship between the US and China, how you also factoring in
  • 02:25 China's trade relationship with other countries as well And and the concerns may be that they're also going to happen and perhaps become a little bit more protectionist.
  • 02:34 Absolutely.
  • 02:34 That is the no question clients are asking us because after all,
  • 02:39 US
  • 02:40 bond exports only 15% of Chinese exports, right.
  • 02:43 You can manage that
  • 02:46 if that's being hit really hard because you have 85% of your exports going elsewhere.
  • 02:51 But if other countries are erecting trade barriers, that will be much harder to handicapped,
  • 02:59 You know, Chinese
  • 03:00 industrial production,
  • 03:02 2530% of that goes to exports.
  • 03:05 If everything gets shut down, it's impossible for Chinese economy just to absorb all of that.
  • 03:10 So this is where I think that,
  • 03:12 you know, Chinese policymakers are probably also thinking about
  • 03:16 how do we strengthen, what else can we do to strengthen relationship with other trading partners to ensure that 85% of our exports at least stabilized and not moving too much.
  • 03:28 I think a few days ago and I'm paraphrasing here,
  • 03:30 I think Premier Li Chiang said they they have enough policies to offset
  • 03:35 the weakness that is likely to come through.
  • 03:37 What do you think he means?
  • 03:38 What are the policy offsets do you think we'll see
  • 03:41 coming out of China to to shelter the economy?
  • 03:43 Yeah,
  • 03:44 I think he has a point there.
  • 03:46 If you think about
  • 03:48 compare country, a smaller
  • 03:50 country like Vietnam versus China, right.
  • 03:52 China, I mentioned
  • 03:54 export to the US, it's about 3% of GDP, whereas Vietnam is double digit,
  • 03:59 right.
  • 03:59 So if you have a double digit trading with the US and US have a huge tariff on you, it's very hard for you to offset, you know, 10% of GDP
  • 04:09 even if you have fiscal room
  • 04:11 versus if you're just going to offset the two 3% of your GDP then by expanding fiscal deficit by a few percent of GDP, it's plausible that you can offset bulk of that.
  • 04:23 So that's where I think Chinese policymakers are probably thinking about ways to offset
  • 04:29 that tariff impact.