Last week, US President Donald Trump ordered the imposition of tariffs on a wide range of Chinese imports to the tune of over $50 billion, sending global markets into a sell off frenzy on concerns that this would mark the beginning of a protracted global trade war. Almost immediately China responded in kind, though in a more measured manner, by imposing its own tariffs on $3 billion worth of various American-produced goods such as fruit, pork, wine and steel pipes. Zuabir Nizami, Head of Global Securities Lending Trading for the Asia Pacific region, explores what this means for the securities lending industry.
The short answer is – not a lot in the near-term. While the trading desk has seen an increase in enquiries for securities in sectors that could be negatively impacted, just like China’s response, borrowing demand has been relatively muted. The majority of interest that we have seen has been for securities in the steel and aluminum sector which were already facing a separate set of proposed tariffs that President Trump announced earlier this month. Taking the steel sector as an example, the impact has been limited so far given that China’s exports of steel (66,000 metric tons) represent just 2.5% of the US total of 2.61 million of imports. China’s sales of steel to the US have been steadily falling since 2014, while those of Brazil and Korea have been increasing during the same time period,* suggesting the impact of this particular tariff will be felt elsewhere.
What is clear, however, is that the saber-rattling has taken on another dimension and that an extended trade war between the U.S. and China may derail global economic growth in the long run. This could potentially result in an increase in stock market volatility, which in turn should provide attractive opportunities from a securities lending perspective.
* Source: Bloomberg
US Imports of Steel from China (Source: Bloomberg)