Analysis of US-China Trade Actions and Market Impact

e Uneven tariff rates and the banning of some US goods e Intellectual property theft e Forced technology transfer e Strategic US technology acquisitions e Outright cyber theft e Foreign ownership restrictions Recent headlines that the trade war may be escalating to a cold war are not without merit, as we believe that US-China relations are changing on a more structural basis and will have a longer-term impact. On a short-term basis, however, US exposure to China is limited with merchandise exports, corporate profits and foreign claims at about 1% of GDP. As seen in Exhibit 7, the Chinese equity markets have also deteriorated much more significantly than US markets in 2018. Of course, specific stocks with greater exposure to China through higher sales have underperformed the S&P 500 by about 6% since the latest tariffs were imposed on $200bn of Chinese products, as shown in Exhibit 8. 7. Impact of 2018 US Trade Actions on Equity Markets — Through October 12, 2018 115 5 7/6: US implements 3/8: steel & aluminum 3/22: tariffs on 5/29: US confirms $34bn (of $50bn) 110 - tariffs announced $50bn of Chinese — tariffs on $50bn will sanctions on China, goods announced be implemented which retaliates | eel 105 = 9/24: US 103.4 = 400 imposes 10% tariffs al 5/23: investigation on $200bn, China 0 95 - 1/22: solar into tariffs on auto retaliates ~ panels & £ imports announced 3 90 | washing 3/23: US implements 7/31: US fe machines metal tariffs on China, considers 25% rather = 85 tariffed which retaliates 6/18: tariffs on than 10% tariffs on g additional $200bn of ee $200bn & 80- Chinese goods announced 75 - - ——S&P 500 China A Shares 720) Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct18 Source: Investment Strategy Group, Bloomberg. HOUSE_OVERSIGHT_026916