Strategists and money managers are preparing for larger strides toward untangling US-China relations in critical sectors as the two countries settle into a less harmonious relationship.
Chinese leader Xi Jinping consolidated power for a third term this weekend in the name of Chinese Communist Party Selected senior leadership positions. This will allow him to continue Ideological politics and the most aggressive global position He sought in his first two periods.
Although few strategists anticipate a complete decoupling due to the deep economic interdependence between the two countries that has been built up over decades, some sort of decoupling – in areas such as high technology – seems inevitable.
Shi’s speech in the twentiethThe tenth Congress party in just days Comprehensive set Restrictions on technology from the Biden administration underscored the change underway as both countries view their relationship and associations from a national security perspective.
For the United States, this Increasingly means closing the gaps and finding ways to build as much leadership as possible in key areas of technology and restrict China’s access to critical technology, such as powerful semiconductor chips, that its military can use. National Security Adviser Jake Sullivan describe it The latest restrictions such as maintaining a “small yard, high fence” approach around critical technologies.
That’s not exactly what the Chinese see, says Scott Kennedy, senior advisor and chairman of the board of trustees for Chinese business and economics at the Center for Strategic and International Studies. Kennedy, who has just returned from a seven-week trip to China, said the prevailing view among government representatives there is that the United States is trying to contain China and keep it low, with the latest wave of restrictions on the chip industry.
“There is a sense that the Biden administration is just beginning to prepare,” Kennedy says. This also raises concern among US companies concerned about whether the businesses permitted today will not be in the future, making it difficult for these companies to plan.
Although Xi’s report to the party conference emphasized security and an alliance of risks, he was not particularly hawkish, says Matthews Asia strategic investment expert Andy Rothman. China has been largely responsive to US regulations and the National Security Strategy while trying to boost its self-sufficiency in critical areas, but Rothman doesn’t see that decoupling as a broad separation given how vulnerable it is to both sides.
Trade data supports this view. The trade war began during the Trump administration, releasing talk of secession as countries sought alternatives to goods that had been subject to tariffs. A pandemic followed that forced a reassessment of remote supply chains for critical commodities. The Uyghur Prevention of Forced Labor Act, which aims to abuse human rights in Xinjiang, has created its own push for dismissal, according to Chad Bown’s Peterson Institute for International Economics. In a recent analysis of trade data.
China now accounts for 18% of all US goods imports, down from 22% at the start of the trade war, according to Bowen. Imports of non-duty products are up 50% from immediately before the trade war, but those hit by tariffs or other restrictions have fallen. Imports of semiconductors from China, for example, are less than 50% of pre-trade levels.
“Even if policymakers expect long-term benefits in decoupling the two economies, their choices come with immediate costs,” Bowen writes. “These costs include product shortages, as supply chains struggle to adapt, as well as inflation, as companies find it costly to create new suppliers.”
lengthy Get rid of the old way of globalization That underpinned economic growth and markets for decades will require an investor reset. In a note to clients, Inigo Fraser Jenkins, co-head of corporate solutions at Alliance Bernstein, said potential effects include higher inflation, lower profit margins and real growth.
For investors, this means considering strategic inflation hedges, preparing for higher levels of default risk and rethinking diversification, says Fraser Jenkins, who also favors more real assets, favoring US investments over international and a greater allocation to gold.
Investors may have time before these forces fully kick in, but the downturn offers an opportunity to reflect on the ripples as more signs confirm that the relationship has entered a new phase.
Write to Reshma Kapadia at [email protected]
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