How does the "big stick" of tariffs affect the market? A detailed analysis from a macro to individual stock perspective!

Regarding the latest US tariff policy, foreign-funded major banks have also made comments. Goldman Sachs' US macro team believes that the announced tariff rate is weighted average of 18.3%, after excluding exemptions for specific categories, the actual tariff increase is 12.6 percentage points. Considering the potential countermeasures and possible further tariff increases in specific industries, the overall tariff increase may be higher than Goldman Sachs' previous expectation of 15 percentage points. Goldman Sachs' European macro team pointed out that the EU is ready to retaliate against US tariffs. At the EU Foreign Affairs Council trade meeting on April 7, there may be a comprehensive response to the tariffs announced by the US on April 2. The team believes that the EU's trade retaliatory policy will follow three main standards: targeting specific products tariffs (steel, aluminum, key imports, and cars) at the "value level," broader equivalent tariffs at the "tariff rate level," and implementing retaliation in the service sector using new policy tools. The direct impact of tariffs on Asian companies is considered relatively small, and the industries most affected may experience indirect impacts through economic growth slowdown and/or currency fluctuations. J.P. Morgan believes that specific companies with a high proportion of revenue from direct exports to the US may be affected. However, in most cases, these companies are expanding or planning to expand their capacity, and have high-quality cash flow and balance sheets that can absorb the potential impact of tariffs, mitigating the credit impact. Companies with highly leveraged balance sheets may face higher risks. In Asia (representing 41% of the Emerging Markets Bond Index Investment Grade), approximately 14.4% of the region is directly affected by US tariffs. This is mainly driven by the industrial sector, especially export-oriented companies with significant direct exports to the US from Taiwan and South Korea. In most cases, these companies' planned or ongoing capacity expansion in the US, along with their healthy balance sheets, may offset the impact of tariffs. Meanwhile, the large financial industry in Asia, representing 39% of the Emerging Markets Bond Index Investment Grade for the region, is less affected by tariffs, providing a strong buffer. Due to concerns about steel and aluminum tariffs and global economic growth slowdown, metals and mining may be more vulnerable. However, their weight in the Emerging Markets Bond Index Asia region is only 3.8%. The risk here is also indirect, as there are very few direct exports to the US. A survey by UBS shows that the industries with the greatest potential profit risk include machinery, petrochemical products, sports apparel manufacturing, biotechnology, and technology hardware. From the perspective of stock prices, in 2018, most export-oriented industries, including machinery, technology hardware, and home appliances, underperformed, while the medical device industry performed well, thanks to government incentives to accelerate hospital construction. From recent stock price trends, it appears that all export-oriented industries have begun to react to the tariff increases, and their performance has been weaker compared to the MSCI China Index. The team expects that export-oriented industries will continue to face pressure from higher tariffs and the potential impact of tariffs on US (and global) demand. Given their reasonable valuation and relative insensitivity to geopolitical influences, domestic consumption stocks in China are favored by investors. UBS believes that consumer stimulus may support economic growth this year. Considering that A-shares have underperformed H-shares since the beginning of the year and are relatively less affected by geopolitical influences, A-shares may be a better area for diversified investments.