China stocks rally to stay on course in spite of latest Trump tariffs threat: Soochow
News Summary
Chinese stocks are maintaining their strong rally despite US President Donald Trump's threat to impose an additional 100% tariff on all Chinese imports and restrict critical software exports. Chen Li, CEO and Chief Global Economist at Soochow Securities (Hong Kong), stated that investors have become "immune" to the prospect of higher US duties. Chen attributes the foundation of this global bull market to a weakening US dollar. He acknowledged that heightened trade tensions triggered a market correction but asserted it would not have a significant impact on the overall market. Market jitters are primarily driven by concerns over America's fiscal policy, the global economic outlook, policy instability under the Trump administration, and ongoing domestic political conflicts, none of which have dissipated.
Background
The US and China have been in a state of trade tension since 2018 when the Trump administration first imposed tariffs on Chinese goods, initiating a trade war between the world's two largest economies. Despite a "Phase One" trade deal signed in early 2020, tariffs were not fully removed. During his 2024 presidential campaign, Donald Trump repeatedly indicated he would consider higher tariffs on Chinese imports if re-elected, aiming to correct what he perceives as unfair trade practices. The current threat of new tariffs and restrictions on critical software exports represents a continuation of his post-re-election policy of sustained pressure on China, intended to escalate economic leverage for concessions in trade and technology.
In-Depth AI Insights
Is the market's demonstrated "immunity" to trade war threats a genuine long-term trend or merely short-term emotional resilience? - Soochow Securities' perspective reflects a current market sentiment where, after years of trade friction, investors have normalized tariff threats as an ongoing risk, likely having partly priced them into asset valuations. - This "immunity" may stem from familiarity with the Trump administration's policy style and confidence in China's economic resilience and policy responses. Furthermore, the macro backdrop of a weakening US dollar might be providing support for emerging market assets, including China, thereby diluting the impact of short-term shocks. - However, if tariff threats escalate from "rhetoric" to "action," and their actual impact exceeds market expectations (e.g., if technology export restrictions inflict deeper damage on critical industries), this "immunity" could rapidly erode, leading to more severe market corrections. Beyond direct tariff implications, what are the potential deeper impacts of the Trump administration's threat to restrict critical software exports on China's tech industry and global supply chains? - Restricting critical software exports is far more strategic and disruptive than commodity tariffs. It directly targets the core of China's high-tech industries, potentially accelerating China's drive for domestic substitution in key software and semiconductor sectors, and in the long run, could lead to further fragmentation of the global technology ecosystem. - For Chinese companies reliant on US software or compatible with US technical standards, this would introduce significant operational and strategic risks, potentially forcing them to re-evaluate their supply chains and technology roadmaps. - Globally, if the US and China develop a "dual track" system for critical software and technical standards, it would increase operational complexity and costs for multinational corporations and could slow down global technological innovation, ultimately impacting global economic efficiency. Given the macro context of a weakening US dollar, can the rally in Chinese stocks be sustained, and what risks should investors monitor? - A weakening US dollar generally benefits emerging market assets by reducing dollar-denominated debt burdens and potentially attracting capital inflows seeking higher yields in non-dollar assets. If this trend persists, it will provide structural support for Chinese stocks. - However, investors should not overlook potential headwinds: in addition to trade and tech wars, attention must be paid to China's domestic structural issues (e.g., real estate risks, local government debt) and geopolitical tensions. A global economic slowdown or an unexpected strengthening of the dollar could challenge the optimistic sentiment in Chinese stocks. - In the long term, China's ability to maintain high-quality growth and sustained improvement in corporate profitability will be core determinants of stock market performance. Investors should focus on companies with competitive advantages in areas like technological self-reliance, domestic consumption upgrading, and green transition.