Staff Reporter
In the face of the ongoing US-China trade war, analysts at Bernstein recommend a strategic “barbell approach” for investors. This method suggests balancing investments across sectors like technology, consumer discretionary, and financials while remaining vigilant about macroeconomic risks.
This conflict, termed “Trade War 2.0,” has intensified as the US implemented a 10% tariff on all Chinese imports. In retaliation, China has imposed 15% tariffs on US coal and liquefied natural gas (LNG), along with 10% tariffs on oil, agricultural machinery, and automobiles.
Bernstein emphasizes that the US relies more heavily on Chinese imports than China does on US goods. In 2024, the US imported around $525 billion worth of Chinese products, representing 14% of total US imports. Key categories include electronics, toys, and apparel. In contrast, China imported only $164 billion in US goods, making up just 6% of its total imports, with primary imports being soybeans, crude oil, pharmaceuticals, and industrial machinery.
Since the onset of the first trade war, China has diversified its trade partnerships, boosting exports to ASEAN countries and the EU while decreasing reliance on North American trade.
In a recent analysis, Bernstein highlighted historical trends from the 2018-2019 trade war, noting that “US markets performed well, averaging a 7% annual return, while China faced a decline of 7% annually.” During that period, defensive sectors like consumer staples and utilities thrived in China, whereas materials, energy, and discretionary sectors lagged behind.
However, analysts warn that the strategies from the previous trade war may not apply this time around. They point to a significantly altered macroeconomic landscape, characterized by higher US bond yields, a stronger dollar, and deflationary pressures in China.
Bernstein estimates that the newly imposed tariffs could contribute an inflationary impulse of approximately 0.13% in the US economy. While China’s retaliatory measures have been relatively mild, Bernstein emphasizes that uncertainty remains high.
Given these evolving dynamics, the analysts recommend a focused investment strategy. They suggest maintaining a “high exposure to technology, consumer discretionary, and financial sectors,” as reasonable valuations and improving market sentiment could bolster these areas in the coming months.
