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Navigating the Tariff Headlines: China's 2.79% Reality

While markets price in potential trade war risk, the data tells a different story.

Author

J.L. Bernstein
November 10, 2024

In partnership with

Happy Sunday.

With all this tariff talk, I wanted to share an opinion piece based on historical objective data. Chinese companies are currently offering a lot to value-focused investors.

My personal game plan is to too slowly get exposure in 2025 -2026 into established Chinese companies like $BABA $PDD $JD $CPNG after the tariff fear settles.

Let's dig in...

We all know markets hate uncertainty.

With Trump’s return to the White House promising 100% reciprocal tariffs on Chinese goods, investors knee-jerk reaction maybe to flee Chinese stocks.

Here’s a case why smart money might be moving in the opposite direction.

The Reality Behind the Headlines

The U.S.-China trade relationship isn’t what you think. While the U.S. is China’s largest trading partner:

  • Only 14.6% of Chinese exports go to the U.S.

  • U.S. exports represent just 2.79% of China’s GDP

  • China’s entire trade balance sits at 2-4% of GDP

Source: OEC.World Trade Data, 2023 Annual Report

Tariffs: Past, Present, and Perspective

Even the most aggressive trade legislation in U.S. history - the 1930 Smoot-Hawley Act - which imposed 45% tariffs on over 20,000 goods, didn’t end international trade.

Today’s picture:

  • Current U.S. tariffs on Chinese goods: 19.3%

  • Chinese tariffs on U.S. goods: 21.1%

  • Rest of World tariffs: Significantly lower

Source: Peterson Institute for International Economics, US-China Phase One Tracker
Global Average: WTO World Tariff Profiles 2023

A 100% reciprocal tariff wouldn’t kill trade - it would reshape it.

Just ask Japan, which thrived despite sending 30.7% of exports to the U.S. in 1970 amid constant trade tensions.

Follow the Money, Not the Headlines

While foreign investors worry, domestic Chinese investors are voting with their wallets:

  • October 2024: 6.85 million new brokerage accounts

  • Single-day trading record: ¥3.45 trillion ($488.9B) on Oct. 8th

  • 2024 projection: 57.2% growth in new trading accounts

The Historical Perspective

Three key trade conflicts show how markets adapt:

2018-2020 US-China Trade War

  • Trump’s $360B tariff program’s actual impact: just -0.68% GDP for China, -0.64% for US

  • Result: Supply chains shifted to Southeast Asia; trade continued (until COVID-19)

1987 Japanese Semiconductors

  • US imposed 100% tariffs on Japanese chips

  • Outcome: Japan moved upmarket, developed new Asian buyers, emerged stronger

1980s Japanese Autos

  • US restricted Japanese car imports to 1.68M annually

  • Response: Honda, and Toyota built US plants, eventually producing 1.7M cars domestically in U.S.

The pattern is clear: markets panic, companies adapt, trade flows shift. While tariffs create short-term disruption, they often accelerate innovation and market diversification.

Why This Time Is Different

Today’s China isn’t 2018’s China:

  1. Domestic consumption now exceeds exports

  2. Financial markets are deeper and more sophisticated

  3. Supply chains are already diversifying

  4. Companies have learned to adapt

What I’m looking out for

The Opportunities that may emerge in upcoming Chinese markets:

  1. Domestic Champions

    • Consumer-focused companies

    • Financial infrastructure plays

    • Local market leaders

  2. Adaptation Winners

    • Companies with diversified manufacturing

    • Firms with strong regional networks

    • Supply chain innovators

  3. Market Infrastructure

    • Brokerages riding the retail wave

    • Payment systems

    • Digital infrastructure

The Bottom Line

Trade headlines drive fear; data reveals opportunity. While markets fixate on tariff threats,
China’s domestic story is compelling:

  1. Record trading volumes

  2. 57% surge in new investment accounts

  3. Just 2.79% GDP exposure to US exports

The math is simple: Markets are pricing in trade war risks while ignoring domestic growth catalysts. For investors who look past the headlines, I think today’s + tomorrows valuations offer a rare entry point into China’s consumption transformation.

Note: Analysis based on data as of Nov. 2024. Market conditions and policies subject to change.

Thanks for reading 🙂 

- John

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