global economy ...

Marketing material The global economy May 2018 Schroders Trade war between US and China? What happened? Likely outcome Early April, US proposes 25% tariff on $50bn of Chinese goods Trade war still unlikely as neither side wants this 25% tariff For China: $130bn Limited ammunition in trade US goods in 2017 war as imported only $130bn of US goods in 2017. Could sell US treasury holdings or devalue renminbi (RMB) though unlikely; may instead use regulations against US companies in China China responded 25% with 25% tariff on tariff $50bn of US goods if US implements tariffs. For US: Enacting tariffs or getting concessions could be Trump's Additional US now considering tariffs on additional $100bn of Chinese goods $100bn way of boosting approval ratings rather than wanting an actual long term trade war. tariff? Who else could be affected? Emerging Markets (EM) Losers: Winners: Asian EM likely to bear brunt of Chinese tariffs E.g. Brazil soybean price surged as China cut buying from US Increased costs mean China and US will have to While goods are exported from China to the US, many components are originated elsewhere source goods from elsewhere Taiwan and South Korea may suffer if tariffs target high-tech products Countries most exposed to US and Chinese tariffs via supply chain % country GDP Japan 3.5 3.0 2.5 Prominent in both US 2.0 and China supply chain 1.5 1.0 However, expect limited impact - aluminium and steel only 2% of 0.5 0.0 Japanese exports to US Of most concern: surge in Yen as safe haven asset could hit Japanese exports, inflation and earnings Value add in Chinese exports I Value add in US exports to US in 2017 to China in 2017 Source: OECD, The Economist Group, Schroders Economics Group, 9 March 2018. Source: Schroders as at May 2018.