China-US trade warcraft: an investigative analysis
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Investors worldwide hang on every news story detailing the ups and downs of the increasingly tense relationship between the United States and China. While helpful, these updates typically note the ebb and flow of the tide, with little regard for the greater sea change that is fundamentally altering this crucial dynamic. In sum, we are witnessing the first act in a long, potentially ugly drama between one nation at the zenith of the world and another with the economic, demographic, geographic and intellectual weaponry to challenge and ultimately overtake its Western rival. This long-simmering clash will have important ramifications for public equities over the short-, medium- and long-term, as mega-cap multinational corporations (MNCs) and small-cap players alike are forced to realign supply relationships, sourcing agreements, partnerships and pricing to reckon with the emergent world order. Here, we analyze history to understand how the China-US relationship evolved to where it is today and where it will likely be tomorrow. Then, we deploy investigative journalistic-style investment research techniques to sift through the nitty-gritty details of tariff schedules and government documents to unearth underappreciated signals, such as the disproportionate impact on data center technologies and a relative free pass enjoyed by consumer electronics. To conclude, we opine on the longer-term ramifications for US company fundamentals. In sum, we believe that, irrespective of any trade agreement hammered out by the leaders of the US and China in the near term, the trade war has exposed fundamental issues that must be understood by equity investors. The proverbial cow is out of the barn.
