Reversal of U.S. tariffs on China could add momentum to Chinese equities

Biden is considering dropping U.S. tariffs on several Chinese imports implemented by Trump in 2018.

• The goal is to bring down inflation, and a decision could come this week.
• The move is estimated to bring down inflation by 0.3% in the short term and eventually rise to 1%.

The idea was announced in early June, and discussions have been ongoing — with disagreements among businesses and lawmakers. Businesses had until yesterday to provide comments.

Tariff impacts: Lifting tariffs has many implications. It could hurt some U.S. factory jobs, but also help parts of the manufacturing sector that import materials abroad.

• A study by the Federal Reserve Bank of New York showed that the cost of the tariffs was “almost entirely” paid for by Americans.
• One idea is to raise tariffs on industrial goods (i.e., machinery and equipment) and lower duties on consumer goods.

Bottom in Chinese stocks? Tariff reversals could help both U.S. and Chinese companies — further adding momentum to Chinese stocks outperforming U.S. stocks in 2022.

The Invesco Golden Dragon China ETF (NASDAQ:PGJ) — which includes U.S.-listed Chinese equities — is up 54% from its March bottom and is down 10% this year.

Fund managers are also getting increasingly bullish on Chinese equities.

• In June, global funds purchased the most onshore China stocks since December.
• Analysts predict the benchmark indexes in China and Hong Kong will be up 4% by the end of 2022.

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