Despite stocks rising higher Monday after President Donald Trump claimed the Chinese government is eager to negotiate with the U.S., a Raymond James analyst warns we aren’t out of the woods yet and the dispute will likely continue.
“I think the message right now” to investors “is this is something that is going to go on for probably longer than initially appreciated,” Edward Mills, managing director at Raymond James, said as part of a conference call with analysts.
There’s been a widely-held belief that if the dispute lingers for an extended period of time, this benefits China. “What we’ve heard from a number of the conversations we’ve had with different” unspecified contacts, however, is that the Trump administration “has been OK with a prolonged time period” for resolution of the dispute, according to Mills.
Why is this the case? An extended timeline for the disagreement “gives U.S. companies more opportunity and more time to make the necessary adjustments” to their supply chains to find alternatives to China, he explained.
The desire to achieve that only seems stronger now after Trump said on Friday that he “hereby ordered” U.S. manufacturers to “immediately start looking for an alternative to China.”
Mills points out that the Trump administration also has threatened to tax $250 billion in goods currently socked with a 25% tariff with an additional 5% tariff; the threat also imposes a 15% tariff, instead of 10% levy, on another $300 billion worth of imports from China.
When it comes to the increased tariffs, “from the investors I speak to, kind of where they are most concerned is in the technology space because that seems to be where we have had most of the national security concerns” with China, he said, pointing to semiconductors, artificial intelligence and biopharmaceuticals.
How much it will cost U.S. manufacturers to move their assembly work out of China “depends on the product,” he said, noting that some estimates suggest it will costs 25-50% more that what they pay today for certain higher-end products. When you levy a 25% tariff, for some high-end products “it might be a wash to make it inside the United States.”