Investing.com -- Bernstein analysts say investors should take a “barbell approach” to navigating the latest US-China trade war, balancing exposure to sectors such as technology, discretionary, and financials while remaining cautious of macroeconomic risks.
The escalation, which they refer to as “Trade War 2.0,” has already seen the US impose 10% tariffs on all Chinese imports, with China responding by placing 15% tariffs on US coal and LNG, along with 10% on oil, agricultural machinery, and autos.
“[The] US [is] more dependent on Chinese imports than China is on US imports,” Bernstein noted.
Bernstein explains that in 2024, the US imported approximately $525 billion worth of Chinese goods, accounting for 14% of total US imports, with key categories including electronics, toys, and apparel.
Meanwhile, they note that China imported just $164 billion in US goods, representing 6% of its total imports, primarily in soybeans, crude oil , pharmaceuticals, and industrial machinery.
Since the first trade war, China is said to have diversified its trade relationships, increasing exports to ASEAN and the EU while reducing exposure to North America.
Looking at historical precedent, Bernstein pointed out that during the 2018-2019 trade war, “US markets did well (7%pa) while China suffered (-7%pa).”
Defensive sectors such as staples and utilities outperformed in China, while materials, energy, and discretionary lagged.
However, analysts caution that “the first tariff war playbook is less likely to work” this time due to a significantly different macroeconomic backdrop, including higher US bond yields, a stronger dollar, and deflationary pressures in China.
Bernstein estimates that the new tariffs could add “+0.13% inflationary impulse for US.”
While China’s retaliation has been relatively mild, Bernstein says the uncertainty remains high. Given these dynamics, they recommend a strategy focused on “high exposure to Tech, Discretionary and Financials ,” as reasonable valuations and improving sentiment could support these sectors.