The leading actors in a developing war over tariffs and trade deals have been accused of not appreciating the myriad ways in which large economic processes are linked.
“Both the US and China appear to be unable to grasp the complexity of supply chains,” said Randeep Grewal, who manages the Trium Opportunistic Equity Fund.
“From Washington, the appearance is China runs a massive trade surplus with the US in electronics – China exported approximately $200 billion of electronics and machinery to the US in 2017. But this does not necessarily recognise the evolving supply streams; semiconductors exported from Taiwan, Japan or South Korea into China represent profit that will ultimately go to US companies.”
The fund manager said there was a risk the US would impose export bans on leading-edge semiconductor manufacturing equipment to China; however, he claimed the risk of tariffs on semiconductor manufacturers themselves were lower than reckoned by the market.
“We anticipate tariffs and trade disputes are going to get increasingly heated, but ultimately businesses will make pragmatic decisions,” said Grewal. “Certain components, which cannot be substituted – whether it be leading-edge silicon or capacitors – are relatively insensitive to demand. Products which have alternatives and are easily substitutable will, however, be hit.”
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