Citi’s most pessimistic case occurs if the U.S. in addition to China fail to reach an agreement or a rollover of the March 2 deadline. Tariffs on $200 billion worth of Chinese goods would certainly increase to 25 percent by 10 percent, This specific said. Citi also expects Washington would certainly attempt to exert further downward pressure on the Chinese economy. Depending on the state of economy, Beijing could elect to retaliate with its own tariff hikes for those products already targeted in its $60 billion penalty.
China could also take “unconventional” measures like placing barriers on American investments or introducing regulatory hurdles on American companies already operating within its borders. This specific might also choose to reduce its holdings of U.S. securities, though of which risk could be contained by potential risks to financial stability, Citi’s strategists wrote.
“This specific scenario would certainly have negative implications for global trade in addition to global growth, potential for nonlinearities in U.S. inflation, in addition to overall a negative confidence shock affecting investment decisions in addition to market sentiment,” Rojas wrote.
Citi strategists think the expected drag to global growth would certainly be a bullish sign for Treasurys, in addition to term premiums would certainly remain depressed. However, the lower-term premium could be at risk if China sells its Treasury holdings. Citi strategists think of which global equities could be down about 10 to 15 percent from the short term.
Consumer technology giant Apple, in particular, could be vulnerable to worsening U.S.-China relations.
“When we assess our coverage the company with the most exposure will be Apple, which has approximately 15 percent of its sales into China in addition to we note Apple’s source code in addition to IP will be not open unlike the Android platform,” This specific hardware analyst Jim Suva wrote. “We note various other large cap stocks such as IBM in addition to Cisco have for many years de-emphasized China due to competition by Huawei in addition to corporations which favor local China solutions.”