Asia-Pacific markets were all in the green as sentiment deepened following advancements made in U.S.-China trade negotiations. And just this week we learned from Chinese state media that China is considering lifting its own punitive 125% tariff on some U.S. imports. This decision would remove some of the international trade pressure. This development, coupled with South Korea‘s calls for orderly discussions with the U.S., signals a potential easing of trade tensions that have long troubled the region’s economies.
As reported by Bloomberg, China is considering dropping its punitive tariff on some US exports. This seemingly innocuous consideration seems to be a clear signal of a larger play to foster more positive trade relations and shore up economic stability. The talks are occurring as both countries are dealing with increasingly contentious trade relations.
At the same time, South Korea has been very deliberate in trying to work together with the U.S. on trade issues. The South Korean government, meanwhile, has repeatedly urged a peaceful and orderly dialogue. They hope to have a finalized trade deal by the end of July to prevent the imposition of new tariffs. This urgency is indicative of South Korea’s wish to act before increasing global turbulence, especially with regard to supply chains and inflation, rattles their own economy.
In further discussions, South Korea and the U.S. reached a tentative deal to work toward a more extensive trade agreement package, known as a ‘Super 301.’ High-level officials from across both countries have convened to discuss ways to strengthen their economic relationship. They zeroed in on tariff and non-tariff measures, investment cooperation, and monetary policies. Note that South Korean Finance Minister Choi Sang-mok and Trade Minister Ahn Dukgeun indeed held a productive meeting with U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer. They later issued a statement calling the talks a “very fruitful success.”
Brazil and South Africa agreed to work cooperatively on shipbuilding. This joint work tripled profits for the South Korean shipbuilders. This sector’s robust performance shows us that when we work together to collaborate, positive rewards come quickly—even in the stock market.
The unpredictable continuing trade negotiations have caused large movements in tariff-sensitive equities, which analysts state are aggressively repriced. These stocks are now down about 20% relative to the broader market signaling the newfound sensitivity to trade headlines.
Worries remain about the economic picture here in the U.S. UBS macro strategist Sean Simonds recently warned that the US is “getting more and more into a recessionary regime.” This all-too-familiar scenario further highlights the tightrope walk that policymakers will need to perform between supporting economic development and confronting rising inflationary pressures.
Domestic consumers continue to take a pragmatic approach to spending as the backdrop of rising trade tensions persists in China. As Goldman Sachs analysts recently pointed out, that’s the wrong focus. In doing so, they found that there is weak direct relationship between Chinese consumer sentiment towards U.S. brands and U.S. tariff policies. They noticed brand momentum and product cycles are key drivers of swings in market share. Alone, tariff policies don’t make nearly the same impact.
“There appears to be limited direct correlation between Chinese consumer sentiment towards U.S. brands and the U.S.’ tariff policy.” – Goldman Sachs team
“We believe brand momentum/product cycle play a relatively more important role in market share shift patterns.” – Goldman Sachs economists
Meanwhile, Japan has taken steps to address the implications of U.S. tariffs by unveiling a package of emergency economic measures. Such an initiative would need to include support for corporate financing and strategies to help boost domestic consumption in order to offset the external economic headwinds.
Krishna Srinivasan, the director of the IMF’s Asia and Pacific Department, posed a related rhetorical question. He highlighted that the biggest challenge facing the whole region is the uncertainty around trade policy. He observed that “Asia has the room to ease monetary policy,” suggesting potential pathways for economic recovery through monetary adjustments.
As markets start to settle in around these changes, investors are starting to get a little more comfortable with the unknowns that are still connected to tariffs. Louis Navellier commented on this trend, stating, “Investors are becoming more comfortable with the uncertainties of tariffs as earnings roll in.” He further noted that “the market seems to be positioning itself for a near-term reduction in the current sky-high China tariffs.”
Leave a Reply