Global trade woes reveal China’s standout sectors
China appears in better footing to push back against the US in the face of a slew of higher and wide-reaching tariffs imposed by President Donald Trump.
The renewed trade war saw Washington imposing an effective duty of 145 per cent on China-made imports, to which Beijing responded with an equally hefty 125 per cent tariff on American products entering the Mainland. Negotiations held in Switzerland saw both countries backing down, with Washinton scaling back tariffs on China-made goods to 30 per cent and Beijing cutting the duties on American goods to 10 per cent. Still, industry-specific tariffs, such as those targeting semiconductors and smartphones, make life even harder for Chinese manufacturers. These additional rates add to existing tariffs installed by Trump during his first term between 2017-2021, and bolstered by his successor, former President Joe Biden.
There is no doubt that the Chinese economy is negatively affected by this escalating trade war, although we believe that the impact is not as large as the self-sabotaging effect that these disruptions will exert on the US.
The tariff war is wide-reaching, but its effect is felt stronger by some sectors compared to others.
The losers
First, the “losers” – these are the sectors most negatively affected by Trump’s fresh wave of import duties. As expected, the industrial sector is worst hit by the bolder tariff war. CSI 300’s Industrials sub-index is down 7.7 per cent from January-April 2025 as manufacturers, particularly export-oriented firms, scramble to find new markets for their products. The US market accounts for 15 per cent of China’s exports as of 2024, its biggest single-country destination.
China’s tech sector is particularly a hard target for the US, initially over allegations of intellectual property theft which has escalated to direct export curbs for American chipmakers essentially to stop Chinese producers from catching up on US-developed innovation. As Graph 1 depicts, share prices of information technology (IT) companies are down 5.1 per cent year-to-date but are up 21 per cent from May 2024.
It is worth noting that the decline in valuations for IT stocks is relatively softer than other sectoral indices thanks to some wins scored by domestic firms. Privately held Chinese firm DeepSeek’s breakthrough in the artificial intelligence space – where it claims to have produced a competitive chatbot using less powerful microchips and at a fraction of the cost of its American rival ChatGPT – boosted market appetite towards China’s listed tech companies. Currently, its learning language model is quickly being applied to run electric vehicles (EVs), enhance smartphone functionalities, and added as a feature to online messaging apps.
Speaking of EVs, Chinese carmakers are also facing a rocky road ahead as the US slapped an extra 25 per cent duty on all imported cars and auto parts on top of the Biden-era tax hike that doubled the price of Chinese EVs to make American renewable vehicles competitive. One must note, however, that entry-level Chinese cars remain cheaper than its US counterparts. There is also a 2027 ban on smart cars running on Chinese or Russia-developed software over national security concerns, further deflating future demand. These have manifested in a 0.6 per cent slide in the Consumer Discretionary sub-index. The slide is modest as declines in the stock prices of SAIC Motor and Changan Automobile – standing at 15 per cent and 5.6 per cent, respectively – had been offset by a 30 per cent gain of privately-owned BYD between January-April, the latter racing ahead in global EV sales.
A double-digit decline is seen for energy stocks, but this is largely due to lower demand from China’s economic slump in 2024, as well as low coal and oil prices that pinched profit margins. Shares in banking and finance companies are likewise lower year-to-date, but is on an upward trajectory since the Ministry of Finance initiated capital-raising initiatives for state-owned lenders.
The winners
Meanwhile, the retail segment is on the rise after 2024’s slump, no doubt fuelled by the set of fiscal stimulus packages rolled out by the Chinese government since September. Consumer staples, including food and household goods, managed a 0.2 per cent increase in the first four months of the year – a marked sign of recovery for domestic demand. Graph 2 shows the growth in domestic retail sales over the past three years, which is back to positive territory.
Total retail sales are up since November 2024, based on government data. Commitments from President Xi Jinping and the Communist Party-led government to stir up domestic consumption, both via spending support to households as well as by being friendlier to private businesses, will sustain this momentum.
Chinese companies catering to domestic demand are also winners at a time of US trade protectionism, as well as export firms which can quickly pivot to domestic sales or send their goods to alternative markets. Already, China is opening discussions with the EU to strengthen their trade ties weeks after Trump’s “Liberation Day” pronouncements, with Beijing reportedly slated to lift sanctions it imposed against several members of the EU Parliament in 2021.
We see a further upside for Chinese stocks and the broader economy as “rescue teams” have been nimble in responding to higher US tariffs. Such examples include a government-run sovereign fund acquiring shares in domestic firms to prop up the stock market, retail and e-commerce giants providing marketing and sales support to export firms looking to refocus, and even individual citizens holding on and expanding their stocks investments as a form of patriotism.
These are only some of the encouraging signals that keep us bullish about China’s economic recovery. China appears in better footing to push back against sky-high US tariffs. As such, we at Lundgreen’s Capital see China’s growth story remaining strong in 2025, and view this temporary decline in equities as an opportunity to buy into the market.
