DWS: Limited impact of tariffs on China's economy as global economy shows signs of recovery
During the meeting of DWS Market Outlook 2025 on 19 November, Ivy Ng, Chief Investment Officer for DWS APAC, addressed the questions regarding China's response to US tariffs, highlighting that this is not a new challenge for China. "China successfully handled similar issues during the first term, and now they are facing a second round," Ivy stated.
A critical aspect Ivy pointed out is the trade balance between China and the United States. In 2017, China exported 20% of its goods to the US market, increasing to 30%. This shift indicates that China has diversified its trade relationships, particularly within Asia, which is a significant factor in the ongoing discussions of trade diversification.
Moreover, Ivy noted that the effective tariffs anticipated are expected to be only 35%, a reduction from the previously projected 60%. Given this context, Ivy believes that the overall impact on China's economy is likely to be limited, estimating it at around 0.5%.
Thomas Hofer, Co-Head of Credit Fixed Income EMEA at DWS, noted that after experiencing recent shifts in interest rates and a significant increase in credit spreads, we are currently in a narrative of a successful soft landing.
Assessing the health of banks within the current macroeconomic environment, Hofer pointed to the regional banking crisis in the U.S. that occurred in March of last year as a significant stress test. While he acknowledged that there are "cracks in the system" following a decade of ultra-low yields, he believes that banks today are in a better position regarding capital and loss absorbency compared to a decade ago. He cited a decade of balance sheet repair and capital accumulation in the banking sector.
Furthermore, Hofer highlighted that the lowest credit spreads were observed when the European Central Bank was actively purchasing corporate and other bonds. Now, with the absence of central bank buying, the market is experiencing a robust flow momentum that he anticipates will continue. This, he pointed out, offers a positive outlook for global fixed-income investments.
(by Kato Ip)
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