Editor's note: The tariff war initiated by President Trump has continued to attract global attention. The frequent changes in tariff policies have become a key factor disturbing the capital markets recently. What should we prepare?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang.
The tariff war initiated by President Trump has continued to attract global attention. The frequent changes in tariff policies have become a key factor disturbing the capital markets recently. Today, we have invited Professor Jing Chuan, visiting professor at Xi'an Jiaotong University and independent economist; Li Daxiao, former chief economist of a brokerage firm; and Yu Shilin, executive director of Futu Securities' institutional and private wealth department, to provide analysis and insights on this topic.
Hello everyone! Trump's previous stance on tariffs was particularly aggressive, but last Thursday marked a shift as he announced a 90-day postponement of tariffs on certain countries. However, the tariffs on China have increased to 125%. A White House official stated in a CNBC interview on the 10th that this 125% is part of the "reciprocal tariffs," representing an increase from the previous 84%. When considering the 20% tariffs previously imposed by the U.S. on China regarding the fentanyl issue, the cumulative tariff rate on China has now reached 145%. First, I would like to ask Professor Jing: from the current perspective, has the tariff war initiated by Trump become a numerical contest? Additionally, does Trump's shift in stance indicate that the trade war has entered a "second phase," and how should we assess the actual impacts that may arise during this phase?
【Jing】Indeed, the tariff war initiated by Trump has attracted widespread attention, particularly as the tariff rates continue to rise and become a focal point for the market. However, the increasing tariff rates, which far exceed the profits of exporting companies from both countries, have lost their practical significance. High tariffs will inevitably have significant negative effects on the economies of both the U.S. and China. As for China, future responses could involve accelerating technological self-sufficiency, adjusting export structures, and strengthening multilateral cooperation, which will enhance economic resilience to some extent. However, as Trump compels other countries to join this trade war, significant impacts on U.S.-China economic relations, the restructuring of global supply chains, and policies from various countries will arise, inevitably suppressing global economic growth.
【Anchor】Last week, the global tariff policy triggered market panic and significant declines, prompting actions from state-owned entities like Central Huijin to stabilize the market, leading to a rebound in the stock market. In light of the current situation, Professor Jing, do you anticipate that the "national team" will increase their intervention pace and intensity in the future? What policy options remain available?
【Jing】Indeed, the market stabilization actions taken by stated-backed institutions, including Central Huijin, have effectively stabilized market sentiment in the short term. We believe that the future pace and intensity of the state-backed institutions' interventions may adjust according to market fluctuations. Additionally, further easing of fiscal and monetary policies from the government, along with continuous structural reforms, will play a role in alleviating both external and internal pressures.
【Anchor】Ok, Mr. Li, what is your perspective on the intervention by the "national team"? Are there any notable aspects we should pay attention to?
【Li】For the first time in 35 years, I have seen the central bank step into the spotlight. This is very rare; previously, it was only regulatory bodies that took center stage. This time, the central bank is intervening, indicating its support for liquidity via Central Huijin. Recently, Central Huijin has also increased its scale and strengthened its capabilities. Central Huijin has for the first time explicitly taken on a market stabilization fund role, which is significant news for the A-share market in its 35-year history. This is a major positive development, even greater than that of a traditional market stabilization fund. Market stabilization funds generally have a significant size, often amounting to billions, whereas Central Huijin operates without a predefined capital limit, backed by the central bank's unlimited liquidity support. Therefore, this declaration by Central Huijin indicates a powerful force is stepping in to stabilize the market. Even more importantly, we have seen the State-owned Assets Supervision and Administration Commission (SASAC) make an unprecedented statement supporting state-owned enterprises in repurchasing shares to stabilize the market, which is also a first.
Additionally, many listed companies have initiated share repurchases. As more and more listed companies take action, the stabilizing forces in the market will be greatly enhanced.
【Anchor】The tariff war initiated by the U.S. has become a common issue faced globally. Mr. Li, what are your thoughts on the cooperation relationship between China and other economies like the EU and ASEAN?
【Li】Through channels such as the EU, ASEAN, and the Belt and Road Initiative, it is highly likely that the broad-based tariff measures from the U.S. have fostered closer economic and trade ties between us and various countries. This situation may be something the U.S. did not anticipate. Although the U.S. is the world's largest economy, its proportion is not necessarily overwhelming; it only accounts for about 20%. As other countries engage further in trade and economic relations, I believe the impact of tariffs will gradually diminish or be replaced by other regions. Moreover, no country can use tariffs to bring back manufacturing, improve people's living standards, or lead to economic recovery.
When the interests of its stock market are severely harmed, the U.S. will also rise in opposition.
【Anchor】Trump's tariff policies have been dealing significant blows to global stock markets. However, the impact extends beyond the stock market, affecting other areas that are equally worth noting. For example, U.S. Treasuries have experienced an unusual sell-off, and the offshore yuan (CNH/USD) briefly fell below 7.4, hitting a record low. Mr. Yu, how do you view the fluctuations in the yuan's exchange rate against the backdrop of the tariff war?
【Yu】Logically, the fluctuations in the yuan's exchange rate are primarily driven by the depreciation pressure arising from the tariff war, particularly the emergence of new depreciation pressures. Recently, we have observed that the onshore yuan's midpoint rate, CNY, has been consistently rising, moving from 7.18 to around 7.2. This change in the onshore yuan's price indicates the central bank's managed tolerance for gradual depreciation of the yuan's exchange rate, providing the market with guidance for an orderly release of depreciation pressure. Additionally, the offshore yuan's exchange rate recently broke through 7.4, surpassing last December's peak of 7.37, which holds certain significance in the market. From this perspective, it seems that overseas investors or those holding offshore yuan have a more prevalent view favoring depreciation.
In summary, the fluctuations are mainly influenced by domestic factors—specifically the central bank's intent to manage an orderly depreciation—and by the market's asymmetric reactions to the trade war. I place significant emphasis on the central bank's guidance, as it represents a central direction. The People's Bank of China is still seeking to find a new equilibrium for the exchange rate that balances overall export benefits with the stability of the yuan. I believe that given the central bank's capacity to intervene in currency markets; stability is manageable.
【Anchor】Professor Jing, how should we understand the recent fluctuations in the yuan?
【Jing】Against the backdrop of the tariff war, the fluctuations in the yuan's exchange rate are indeed unavoidable. This is mainly due to market concerns regarding China's economic outlook and the pressure of capital outflows. A series of intervention measures by the People's Bank of China have maintained relative stability in the market, clearly avoiding excessive depreciation of the yuan that could further impact the economy. The future exchange rate of the yuan will depend on the outcomes of U.S.-China trade negotiations, as well as the economic situation in China and globally, and the implementation of policies.
We believe that the People's Bank of China will continue to take measures to ensure the stability of the exchange rate and avoid large fluctuations that could harm the economy.
【Anchor】Sure. Mr. Yu, how do you anticipate the yuan's exchange rate will trend in the context of the tariff war?
【Yu】The central bank's maintains control over the midpoint rate to ensure stability. Even when releasing depreciation pressure, it is still a controlled and orderly depreciation. As for the offshore yuan, I think it will still be influenced by sentiment and external factors to some extent. In summary, I believe that this year the yuan's exchange rate will remain relatively stable, which aligns best with China's interests. However, regarding the trend of depreciation, I think it may not necessarily be against the U.S. dollar but rather more so against other trading partners, to maintain overall trade competitiveness. Under this premise, the stability of the U.S. dollar and the yuan should be prioritized. I believe there will be some adjustments between the two. Overall, the idea of depreciating in response to the tariff war is a direction, but it remains a controllable trend.
【Anchor】Yes, some opinions suggest that the panic triggered by the tariff conflict may lead to irrational investor sell-offs and even "unjustly punishing" quality assets. Institutions have also warned that this is not the moment to "buy the dip." Mr. Yu, what are your thoughts on this?
【Yu】In the short term, I think buying the dip may not present an opportunity but rather a risk. However, from a mid-term perspective, buying the dip could represent an opportunity. To elaborate, the current market uncertainty due to Trump's policies still exists. Moreover, if we treat this as a short-term gamble, the core advantage lies in having an information edge, which most investors do not possess.
We've seen over the past two trading days that fluctuations in both the U.S. and Hong Kong stock markets are heavily influenced by views on the U.S.-China tariff war and comments from leaders, which cause significant volatility. This information gap, including the speed of information dissemination and potentially different trading hours, creates an advantage for some investors. Therefore, opportunistic buying during market dips may carry elevated risks under current uncertainties.
Moreover, I believe that investing is a medium-to-long-term trend, not just a matter of seizing short-term opportunities. Lastly, from the perspective of buying the dip, it is necessary to adjust the asset categories or sectors. The market currently anticipates that the Chinese government may introduce additional fiscal support in the third quarter, possibly issuing around one trillion in bonds to support fiscal policy. Before this policy is implemented, there may also be some optimization of monetary policies, including potential reserve requirement ratio (RRR) cuts and interest rate cuts, with expectations of a rate cut coming in April and interest rate cuts in second quarter. If these policies are implemented, they could support domestic consumption or financial-related assets, including those with high yields.
【Anchor】Okay, Professor King, what do you think?
【Jing】Currently, this is not the best opportunity to buy the dip. We advise investors to be cautious about current market changes, paying close attention to policy changes and market trends, and to wait for clearer market trends before making decisions. We believe that effective asset allocation and enhanced risk management are effective strategies for dealing with current market uncertainties.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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