1. Select region

3. Select role

Institutional Intermediary

This website is not suitable for retail investors. If you are a retail investor, please contact your financial advisor.

x

Change country

IMPORTANT INFORMATION

You are about to enter a website for professional/institutional investors and the information contained herein is not suitable for retail investors. Private/retail investors should not proceed any further.

By clicking “Accept” you expressly acknowledge and confirm that you are accessing this site for the purposes of acquiring information as a professional/institutional investor and accept the Terms of Use.

  • TERMS OF USE

    Your access to and use of the web sites (“Services”) of Wellington Management are conditioned on your acceptance of and compliance with these Terms of Use (“Terms”). By accessing or using the Services, you agree to be bound by these Terms. If you are accepting these Terms and using the Services on behalf of a company, organization, government, or other legal entity, you represent and warrant that you are authorized to do so. You may use the Services only in compliance with these Terms and all applicable local, state, national, and international laws, rules, and regulations.

    Ownership
    All materials on this web site are owned or licensed by Wellington Management and/or its third-party providers and are protected by US and international intellectual property laws.  Unless otherwise indicated, all service marks, trademarks, and logos appearing on this web site are the exclusive property of Wellington Management. The information, materials, and other content of this web site may not be copied, displayed, distributed, downloaded, licensed, modified, published, reposted, reproduced, reused, sold, transmitted, used to create a derivative work, or otherwise used for public or commercial purposes without the express written consent of Wellington Management.

    Products and services
    The information, materials, products, and services on this web site are current at the time of writing and are subject to change. Not all products and services are available in all geographic areas. Your eligibility for particular products or services is subject to determination by and the approval of Wellington Management. No solicitation is made by Wellington Management to any person to use any information, materials, products, or services in any jurisdiction where the provision of such information, materials, products, and services is prohibited by law.

    The information on this web site or in any communication containing a link to this web site is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities.

    Investment products and services are available through Wellington Management. Investment products and services are not FDIC-insured, are not deposits or obligations of, or guaranteed by, any bank, and involve investment risks, including the possible loss of the principal amount invested. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or invest in a fund.

    International use
    Wellington Management makes no warranties that materials on this web site are appropriate for use in countries other than the US. Because the web site may be accessed internationally, you agree to comply with all local laws, rules, and regulations including, without limitation, all laws, rules and regulations in effect in the country in which you reside and the country from which you access the web site. The information on this web site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Wellington Management or its affiliates to any registration requirement within such jurisdiction or country.

    No warranty
    Wellington Management does not warrant the accuracy, adequacy, completeness, or timeliness of the information, materials, products, and services on this web site or the error-free use of this web site. All information, materials, products, and services are “as is” and “as available.” No warranty of any kind, express or implied, including but not limited to the warranties of non-infringement of third-party rights, title, merchantability, fitness for a particular purpose, and freedom from computer virus is given in conjunction with the information, materials, products, and services. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. Wellington Management does not warrant that the web site will meet your needs. You agree to assume the entire risk as to your use of the web site.

    Limitation of liability
    In no event shall Wellington Management be liable for any damages, losses, or liabilities including without limitation, direct or indirect, special incidental, consequential damages, losses, or liabilities, in connection with your use of this web site or your reliance on or use or inability to use the information, materials, products, and services on this web site, or in connection with any failure of performance, error, omission, interruption, defect, delay in operation or transmission, computer virus, or line or system failure, even if Wellington Management is advised of the possibility of such damages, losses, or expenses.

    YOU UNDERSTAND AND AGREE THAT YOUR USE OF THIS WEB SITE IS PREDICATED UPON YOUR WAIVER OF ANY RIGHT TO SUE WELLINGTON MANAGEMENT OR ITS AFFILIATES DIRECTLY OR TO PARTICIPATE IN A SUIT FOR ANY LOSSES OR DAMAGES RESULTING FROM YOUR USE OF THIS WEB SITE.

    Indemnification
    As a condition of your use of the Services, you agree to indemnify and hold Wellington Management, its affiliates, and its and their respective partners, directors, employees, and agents harmless from and against any and all claims, losses, liability, costs, and expenses (including but not limited to attorneys’ fees) arising from your use of the web site or from your violation of these Terms.

    Hyperlinks
    Your use of the hyperlinks on this web site to other Internet web sites is at your own risk. Wellington Management is not responsible for the content or accuracy of third-party web sites hyperlinked from this web site, nor does it guarantee the products or services offered on third-party web sites. You should review the privacy statements of a web site before you provide any personal or confidential information.

    Web site security and restrictions on use
    As a condition to your use of Services, you agree that you will not, and you will not take any action intended to:  (i) access data that is not intended for you; (ii) invade the privacy of, obtain the identity of, or obtain any personal information about any other user of this web site; (iii) probe, scan, or test the vulnerability of this web site or Wellington Management’s network or breach security or authentication measures without proper authorization; (iv) attempt to interfere with service to any user, host, or network or otherwise attempt to disrupt our business; or (v) send unsolicited mail, including promotions and/or advertising of products and services. Unauthorized use of the web site or Services, including but not limited to unauthorized entry into Wellington Management’s systems, misuse of passwords, or misuse of any information posted to a web site, is strictly prohibited. Portions of the web site are designated for password access only as indicated by a lock icon. In these instances, if you do not have an authorized password, no access is permitted.

    Confidentiality and password security
    Certain parts of this web site may be protected by passwords or require a login. You are responsible for maintaining the confidentiality of any user names, passwords, security questions, and answers. All information available through the privileged area of the site is confidential and proprietary to us. This includes all investment information and results, offering materials, financial statements, and other information provided through this part of the site.

    You will use your best efforts to keep all this information strictly confidential. You will not disclose any of this information to any person or use it for any purpose other than those strictly permitted by us, in writing.

    Severability
    If any provision of these Terms is deemed unlawful, void, or for any reason unenforceable, then that provision will be reformed only to the extent necessary to make it enforceable, and it will be deemed severable from these Terms and will not affect the validity and enforceability of the remaining provisions.

    Applicable law
    These Terms and any action related thereto are governed by Massachusetts law and applicable US federal law. Any dispute relating to the above shall be resolved solely in the state or federal courts located in Massachusetts.

    Privacy statement
    Wellington Management respects the privacy of its clients and the confidentiality of information pertaining to its clients.

    Information we collect
    We may collect non-public personal information about you on RFPs, questionnaires, and other forms we receive from you, as well as from personal contacts such as correspondence, e-mail, telephone calls, or meetings. We may also receive information about you from third parties, such as your accountants, lawyers, financial consultants, and/or other service providers.

    It also is possible to receive information from web browsers and apps regarding certain of your online activities using cookies, or other common tracking technologies.  Some web browsers and other applications may provide a Do Not Track (DNT) preference setting.  When a user turns on a tracking preference, the browser or application may send a message to web sites requesting that they do or do not track the user. At this time, we take no actions in response to any DNT settings or messages.

    Information sharing
    Wellington Management seeks to provide seamless service to all clients. To facilitate that process, information regarding client accounts is shared broadly between affiliates within the Wellington Management group of companies. For example, an affiliate may share information with other affiliates in order to facilitate portfolio management or provide client liaison services to a particular client. Client information may be used by Wellington Management in order to identify potential client needs for additional investment management services.

    Wellington Management generally does not share non-public client information with unaffiliated third parties, except as necessary to perform the investment management services it has been hired to provide. For example, Wellington Management may share non-public client information with brokers and custodian banks in order to buy and sell securities and record those purchases and sales accurately. As a general rule, Wellington Management does not engage in joint marketing arrangements with unaffiliated third parties that involve the sharing of non-public information regarding Wellington Management’s clients. Wellington Management does not provide client information to unaffiliated third parties for their own marketing purposes.

    Wellington Management does not disclose your information except as required or permitted by law. In the event that Wellington Management is involved in a merger, acquisition, reorganization or sale of assets, or bankruptcy, your information may be transferred or sold as part of that transaction.

    Security policies
    We use technical, administrative, and procedural measures in an attempt to safeguard your personal and other information from unauthorized access or use. No such measure is ever 100% effective though, so we do not guarantee that your personal and other information will be secure from theft, loss, or unauthorized access or use, and we make no representation as to the reasonableness, efficacy, or appropriateness of the measures we use to safeguard such information. Users are responsible for maintaining the secrecy of their own passwords. If you have reason to believe that your interaction with us is no longer secure (for example, if you feel that the security of any account you might have with us has been compromised), please immediately notify us by contacting your relationship team member.

    Transfer of data to other countries
    Any information you provide to Wellington Management through use of the Site may be stored and processed, transferred between, and accessed from the US and other countries which may not guarantee the same level of protection of personal information as the one in which you reside. However, Wellington Management will handle your personal information in accordance with this Privacy Statement regardless of where your personal information is stored/accessed.

    Changes to Terms of use

    We may revise these Terms from time to time; the most current version will always be at http://www.wellington.com/terms-use. By continuing to access or use the Services after those revisions become effective, you agree to be bound by the revised Terms.

    Effective as of  17 January 2014

I ACCEPT I DO NOT ACCEPT
This web site uses cookies; by continuing to browse you consent to our cookies usage.
See our policy for more details.

March 2018 | Paul Cavey, Global Bond Strategist; Michael Medeiros, CFA, Global Bond Strategist

Trade war, détente, or other? Gauging options and outcomes for proposed US tariffs

Negotiators have three months to work out a deal with Beijing. While media headlines may scream “trade war,” we see paths to a more constructive outcome if certain conditions are met.

We believe that the Trump administration’s newly announced tariffs on US$60 billion worth of goods imported from China are the starting point of several MONTHS of negotiations. While media headlines may scream “trade war,” what happens over the next three months could lead to a much different outcome. In our view, escalation into a trade war remains a significant risk that we continue to focus on, but we do see paths to a more constructive conclusion if certain conditions are met in the near term.

The planned tariffs were prompted by the US government’s investigation into Chinese intellectual property (IP) practices per section 301 of the Trade Act of 1974. Section 301 authorizes the President to take action or retaliate against a foreign government’s policies that either violate a trade agreement or unfairly restrict US commerce.

The Trump administration has set upon a course of action that will take three months to complete. First, the US Trade Representative Robert Lighthizer will publish over the next 15 days a list of goods to be taxed. This will be followed by a 30-day comment period and an additional window for rounds of negotiations and guideline-setting for any restrictions. Deadlines for this process are in June.

By creating a lag before any policy goes into effect, the US is signaling its willingness to negotiate with China. This is certainly constructive in our view, although the administration has suggested it would enforce the tariffs bluntly if negotiations do not go well. If China is willing to discuss some of the US’s chief concerns and conditions, such as IP practices, auto tariffs, and access to China’s financial sector, the US will likely seek a pragmatic near-term solution.

US concerns and desired outcome

In our view, it seems reasonable that a positive outcome from a US perspective would include progress on a few key areas:

  • Evidence of greater transparency, specificity, and an easing of technology and IP transfer practices for US firms
  • Recourse for US companies to set market-based terms in licensing and technology-related deals
  • Enhanced cybersecurity for the protection of IP, trade secrets, or confidential business information
  • Further opening of China’s economy and a reduction in tariff and nontariff trade barriers

China’s options

Any progress likely depends on China’s perceptions of President Trump’s objectives. If Beijing thinks he is merely seeking a short-term, headline-grabbing political win, then we believe it will probably play along and buy more US goods. If, however, China thinks that Trump is aiming to upend China’s development model (something that Peter Navarro, Trump’s director of Trade and Industrial Policy, has implied), then it will likely respond more negatively.

We believe there is a third option as well, in which China opens up its economy in more fundamental ways. China could cut auto tariffs, for example, or move toward strengthening trading links with Europe. Several of China’s top political leaders, including Li Keqiang, premier of the State Council; Liu He, the main economic adviser to Chinese President Xi Jinping and a newly promoted vice premier; and Yi Gang, the new governor of the People’s Bank of China, have recently spoken in these terms.

In brief, we see three options for China:

Cut US imports

If China thinks the move is ideological and nothing can be done to dissuade the US from deepening protectionism, it may cut US imports and penalize US firms operating in China. This would demonstrate displeasure with US tariffs and could result in a US-China (and possibly global) trade war.

Increase US imports

If China thinks President Trump wants a quick political win, it may decide to increase imports from the US, particularly on big-ticket or high-volume items such as aircraft or soybeans. China might be fine with Trump claiming “victory” with such an outcome, as nothing fundamental in the trade relationship would change, yet it would likely avert or de-escalate the risk of a trade war.

Open up China’s economy

If China thinks the US can be persuaded to take a pragmatic approach, in part by dismantling the unusual coalition of US businesses and geostrategic hawks holding sway in Washington today, then Beijing may decide to open up China’s economy further, allowing foreign firms to buy Chinese competitors, for example. We believe this choice would be generally positive for global trade.

The Europe question

There is one more angle to consider: China might open up its economy to Europe specifically, by pushing through the EU-China Comprehensive Agreement on Investment (CAI). Negotiations on the CAI started in 2012, but progress has been slow. We see some obvious reasons why China would have a more acute interest in pushing that through now:

  • To show the US what it loses out on via protectionism
  • To try to shift the axis of world trade and economic activity away from the Pacific Rim-US and toward Eurasia-China. This would be consistent with China’s ambitious, multidecade Belt and Road Initiative.
  • To push through structural domestic economic reforms. In the last 30 years, the dual themes of “reform” and “opening” in China have gone hand in hand. Chinese premier Zhu Rongji complied with certain requirements to enable China to join the World Trade Organization in 2001, for example.

What happens next?

Ultimately, the size of the problem may depend on whether and to what extent the US or China broadens the scope of protectionism. For now, some of the recent market concerns may stem less from the actual policy proposals and more from the timing of recent announcements, which have coincided with tightening by the US Federal Open Market Committee (FOMC) amid full-employment fiscal stimulus.

Structurally, the average global tariff rate has fallen significantly since the late 1980s, creating an important support for productivity growth in the US through comparative advantage. Trade protectionism represents a negative supply shock and a tax on the users of any protected commodity. Protected industries tend to be less productive, elevating the probability of cost-push inflation (especially when implemented at full employment). In the medium term, these measures can be deflationary if private-sector saving rates rise and dampen animal spirits, particularly capital spending.

In the current environment, a substantial increase in tariffs could dent fiscal multipliers and tighten financial conditions. The FOMC would be in a difficult spot, facing a deteriorating growth/inflation trade-off that could lead to a regime in which both stocks and bonds suffer from rising inflation volatility.

For China’s part, we should note that notwithstanding trade dynamics, the decision to open up China’s economy may well depend on President Xi’s worldview. For the last five years, economic opening has stalled in China. Whether Xi has not had time to pursue this because he has been focused on consolidating power, or whether he simply doesn’t believe in further opening, matters a great deal in our opinion. For now, we lack enough information to conclude which is the case. It is encouraging that the economic reformer Liu He has just been promoted, and we feel that any signals of China’s willingness to make the concessions needed to push CAI though would also be positive.

Views expressed have a 6 – 12 month horizon and are those of the authors. Views are as of March, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities.

Insights

Explore insights