After the tariff reduction, what are the rebound opportunities in the export chain?

1. After Tariff Reductions, What Are the Opportunities for Export Chains to Rebound?

On May 12, the U.S. and China reached an important consensus on tariffs. The current situation of U.S. tariffs on China is as follows: the 232 tariffs remain, a 20% tariff on fentanyl remains, and reciprocal tariffs have been reduced from 125% to 34%, with 24% of the tariffs suspended for 90 days. Therefore, for the vast majority of goods, the new tariffs this year have decreased from 145% to 30% (20% for fentanyl + 10% for reciprocal tariffs).

After the adjustment of tariffs between the U.S. and China, the profit losses in the export chain industry are expected to be significantly alleviated, presenting opportunities for a rebound. We conducted a static estimation of the damage to various industries from the new U.S. tariffs on China (not considering the impact of overseas production capacity & tariff spillover) and considered the excess rise and fall of each industry relative to the release of reciprocal tariffs in April to filter the export chains that are likely to rebound. The estimation method mainly involves the following core indicators:

• Overseas Revenue Proportion: Overseas business income/Operating income, data sourced from listed company annual reports, calculated using the overall method for each industry;

• Exposure to U.S. Revenue: Corresponding HS04 export categories to secondary industries, measured using [Proportion of overseas revenue of listed companies in the industry X Proportion of industry exports to the U.S.];

• Net Profit Loss Situation: New tax rate * U.S. tariff elasticity on imports from China (1.7[1]) * Exposure to U.S. revenue * Revenue profit impact coefficient (1.3204), where [New tax rate * U.S. tariff elasticity on imports from China] is capped at 100%, indicating a complete interruption of direct trade between the U.S. and China.

It is important to note that if factors such as transshipment trade, overseas production capacity, and industry bargaining power are taken into account, the actual profit loss in the industry may be better than the estimated results.

[1] This section references the U.S. tariff elasticity on imports from China (1.7) and the revenue profit impact coefficient (1.3204) from the report "How Much Decline in a Bull Market: How Much Impact from Tariffs" by the Macroeconomic Team of Industrial Securities. The former indicates that a 10% tariff on Chinese goods will lead to a 17% decline in the growth rate of Chinese exports to the U.S. The latter indicates that the impact coefficient of profit growth and revenue growth of Chinese industrial enterprises from 2000 to 2024 is 1.3204.

By comparing the extent of net profit growth loss in various export chain industries under the latest policy and previous tariff conditions, the industries that have seen the most improvement in net profit loss after tariff reductions are mainly concentrated in home appliances, electronics (optical optoelectronics, consumer electronics), textile and light industry (home, entertainment products, textile manufacturing), medical and pharmaceutical (medical devices, chemical pharmaceuticals), and machinery and equipment. Among them, in conjunction with the excess rise and fall after the release of reciprocal tariffs in April, attention can be focused on the currently oversold industries, including electronics (consumer electronics, optical optoelectronics), medical and pharmaceutical (medical devices, chemical pharmaceuticals), and home appliances (small appliances, lighting equipment, kitchen and bathroom appliances)

II. Which export chain industries are expected to break through in the medium to long term?

2.1. Emerging growth industries: terminal markets are relatively dispersed, and penetration rates can be improved

The field of new productive forces is a key point for promoting the switch of economic momentum in the long term and the implementation of short-term support policies. It is also a direction that is expected to build long-term competitiveness globally. In the field of new productive forces, China has already mastered a certain share of global exports in areas such as the new energy chain, computers, and machinery. Recently, there has been strong uncertainty in external policies towards China, and the fiscal budget is expected to further tilt towards supporting the accelerated development of related industries. Additionally, a new round of AI industry explosion is also expected to assist in upgrading related industries and enhancing their core competitiveness globally.

Since 2018, China's mid-to-high-end manufacturing industry has accelerated its expansion into overseas markets, which has validated this point. For example, in the sub-sectors of engineering machinery, passenger vehicles, commercial vehicles, marine equipment, and computer equipment, the proportion of overseas revenue in 2024 has increased by more than 10 percentage points compared to 2018.

Secondly, to desensitize trade conflicts, related categories need to minimize dependence on a single market, meaning that the degree of terminal market dispersion should be relatively high. By measuring the export concentration of various industries based on China's export share to the United States, ASEAN, and EU28, it can be seen that the export dispersion characteristics of categories such as automobiles and their parts, engineering machinery, metals, and chemicals are quite evident. On one hand, the export concentration is lower than the overall level (47.7%), and on the other hand, it has shown a continuous downward trend in recent years.

Of course, some of China's mid-to-high-end industrial products are rapidly capturing global market share due to supply chain advantages and technological barriers, leading to an inevitable increase in export concentration, such as batteries and shipbuilding. These categories also possess considerable international competitiveness even under tariffs.

Finally, the fact that there is still room for improvement in global penetration rates is also an important factor to consider. Referring to the situation of the previous round of tariff conflicts, if we group the key product categories involved in the tariff list according to the proportion of China's exports to global exports in 2017, we can see that after the U.S. initiated tariffs against China, the vast majority of products with a global export share below 30% that year achieved effective breakthroughs in global market share. However, when the global export share has already reached 30% or above, the space for further upward breakthroughs in market share is significantly compressed Therefore, we focus on screening industries where the global export share is still below 30%, mainly including the automotive supply chain, shipbuilding, semiconductors, communication equipment, machinery, medical devices, and chemical products.

Considering the above three major factors, the industries that are relatively desensitized to trade conflicts in the medium to long term, have strong long-term competitiveness, and can improve their penetration rates mainly include the automotive supply chain, shipbuilding, machinery (construction machinery, general equipment, specialized equipment), medical devices, and chemical products in the mid-to-high-end manufacturing sector. Among them, categories such as automotive parts, machinery, and chemical products have relatively sufficient overseas production capacity layout, providing stronger risk resistance capabilities.

2.2. Traditional Advantage Industries: Mastering Global Discourse Power

Industries with a high global export market share and market discourse power have strong capabilities to respond to tariff risks. For subcategories where domestic exports account for more than 30% of the global share, and where the global market share has remained stable or further increased after the 2018-2019 trade war, it is difficult to quickly replicate production capacity layout and cost advantages in a short time. Even under extremely high tariffs, China remains a major player in the global supply chain. Industries with such characteristics mainly include light industry (cultural and entertainment light industry, home furnishings), batteries, textiles, and home appliances (small appliances, black appliances, lighting equipment)

The textile and apparel chain, electronics (electronic chemicals, components), new metal materials, and home appliance components, which have a relatively small direct exposure to the U.S. (below 15%), are less directly affected by U.S.-China tariffs. For industries with significant direct exposure to the U.S., having sufficient production capacity overseas can further reduce the impact of tariffs, with typical examples being home goods and batteries.

III. Summary

1. In the short term, under the current tariff conditions, we have identified potentially oversold export chain industries by analyzing the improvement in net profit losses and excessive declines, mainly including electronics (consumer electronics, optical optoelectronics), medical and pharmaceutical (medical devices, chemical pharmaceuticals), and home appliances (small appliances, lighting equipment, kitchen and bathroom appliances).

2. In the medium to long term, emerging overseas industries that are desensitized to trade conflicts, have the potential for increased penetration rates, and possess long-term competitiveness mainly include the automotive chain, shipbuilding, machinery (engineering machinery, general equipment, specialized equipment), medical devices, and chemical products in the mid-to-high-end manufacturing sector.

3. Among China's traditional advantageous export industries, the textile and apparel chain, electronics (electronic chemicals, components), new metal materials, and home appliance components have relatively small direct exposure to the U.S., while home goods and batteries have sufficient overseas production capacity. Therefore, they all possess strong resilience to tariff risks and global competitiveness in the medium to long term.

Article authors: Zhang Qiyao, Zhang Qianting, Xia Qiu, source: Yao Wang Hou Shi, original title: "After Tariff Reductions, What Are the Opportunities for Export Chains to Rebound?"

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