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Investing.com - Sections of Chinese stock markets are "reasonably immune" to a tariff-induced slowdown in global economic activity, but could still face trading at a "significant discount," according to analysts at UBS.
In a note to clients, the analysts led by Sunil Tirumalai warned that while they remained "overweight" on Chinese equities, sustained U.S. tariffs of 100% or more could "derail" this call.
On Thursday, U.S. President Donald Trump said that he had hiked tariffs on Chinese imports by a total of 145% since the start of his second term in power.
Trump had previously said he would increase levies on the world's second biggest economy to 125% in response to retaliatory measures from Beijing. However, the White House later explained that the 125% is on top of a 20% tariff the president had already slapped on China for its alleged role in the supply of the illicit drug fentanyl to the U.S.
"If the current 145% tariff on China sustains for a longer period, then it may be difficult for the market to stay immune from the second order effects," the UBS analysts wrote.
"It is still possible that China manages to negotiate down to a lower tariff number (at least we now know that U.S. administration is willing to budge on tariffs). This is an area we will keenly watch."
China raised its import tariffs on U.S. goods to 125% on Friday in retaliation to the latest hike in levies imposed by Trump.
The duty is an increase from 84% announced by Beijing on Wednesday, and marks an escalation in an intensifying trade war between the U.S. and China. It will take effect from Saturday, Beijing said.
"The U.S. imposition of abnormally high tariffs on China seriously violates international and economic trade rules, basic economic laws and common sense and is completely unilateral bullying and coercion," China’s Finance Ministry said in a statement quoted by Reuters.