Chief economist's comment: Where were tariffs avoided?
The desk interprets the insights from UBS's Chief Economist Paul Donovan as an indication that US importers are effectively circumventing tariffs on Chinese goods, thereby dampening the anticipated inflationary impact of such tariffs. Donovan notes that up to 50% of China's exports to the US may be misattributed to third-party countries, suggesting a strategic adjustment by US importers to enhance their price competitiveness. This insight could signal less immediate pressure on inflation rates and growth forecasts for both the US and China. Per the full note , the implications of this dynamics imply reduced economic benefits from any future tariff reductions than previously expected.
What the desk is arguing
The current analysis suggests that the manipulation of import classifications allows US companies to mitigate tariff costs associated with imports from China. Per the commentary from UBS, this tactic has resulted in a more resilient performance in Chinese exports than anticipated, potentially lessening the impact of trade tensions on both economies.
Evidence presented highlights the practical realities of global trade, where the import metrics indicate that actual tariff burdens are lower than the simple headline rates. As Donovan points out, this duality illustrates a complex trade relationship where the effective tariff rate for US importers seems decreased due to creative reporting methods.
The alternative analysis might have suggested a direct correlation between the imposition of tariffs and inflationary pressures in the US economy. However, the current findings refute this by indicating a more nuanced economic interaction between the US and China.
Where it sits in our coverage
Our consensus target for the USD/CNY pair stands at 1.075, with a range reflecting expectations from various firms as follows: - JPMorgan: 1.10 (Mar 26) - BofA: 1.04 (Mar 26)
This commentary aligns with the broader market consensus, where economic analysts are cautiously optimistic about short-term currency stability amidst fluctuating import/export data. However, given the mixed signals provided by our internal coverage, this stance might occupy a mid-range perspective rather than a definitive upper or lower-bound outlook.
How other firms see it
Several firms appear to agree with the thesis presented by UBS, particularly those forecasting stability in the face of tariff-induced disruptions. Notably, JPMorgan maintains an aligned position, supporting the view of diminished tariff impacts. Conversely, BofA adopts a more cautious stance, indicating potential challenges ahead depending on the evolution of trade policies.
Markets should keep an eye on the interrelation between tariffs and trade volume as it pertains to the USD/CNY pair. The impacts of US Federal Reserve policy adjustments could also create ripples across related currency pairs such as AUD/USD and CAD/JPY, necessitating attention to these dynamics.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US importers are leveraging creative classifications to avoid tariffs on Chinese goods.
- 02Up to 50% of China's export values are potentially misreported to reduce effective tariffs.
- 03The impact on US inflation may be less severe than anticipated due to these practices.
- 04Future tariff reductions may yield reduced economic benefits than current expectations.
Market implications
Watch for adjustments in the USD/CNY as trade figures are released; a sustained rate near our consensus target of 1.075 will signal market confidence in tariff mitigation strategies. Additionally, any policy changes from the Federal Reserve could influence the broader currency landscape.
Risks to this view
A significant rise in tariffs or changes in US trade policy could invalidate the current outlook, potentially leading to higher effective tariffs and a corresponding rise in inflation. Additionally, geopolitical tensions that disrupt trade routes could also alter the existing dynamics.
China exports more to the US than the US imports from China. Are ships disappearing in the middle of the Pacific Ocean? View this email in a web browser Where were tariffs avoided?
Chief economist's comment by Paul Donovan China's exports seem to be arriving in the US in a series of cunning disguises, helping US importers minimize tariffs. The result is less US inflation and more resilient China exports than an initial reading of US tariffs might suggest. Comparing China's export data and US import data suggests that US importers of China's products are finding ways to avoid paying the US's tariffs on China.
Up to half the value of China's exports to the US may be reported as coming from countries other than China. Goods exported from China also appear to be reclassified en route to the US. Some of this may be due to the ambiguity of the classification categories, but it may also reduce US importers' tariff bills.
This suggests US importers are paying a lower effective tariff rate. The impact of headline tariffs on US inflation and growth is more muted. China's export-led growth is less damaged by tariff disruption.
However, this also suggests that any future reduction in trade tariffs will be less economically positive than the headlines might suggest. Read more 〉 Read important disclaimer 〉 Recommended content Nobel Perspectives - Exploring the questions that shape our world 〉 Women in Economics – Explore the work of influential thinkers 〉 You have received this email because you registered at . Unsubscribe #end --> | Edit profile Publication data: UBS AG, P.O.
Box, CH-8098 Zurich Based on previous e-mail correspondence with you and/or an agreement reached with you, UBS considers itself authorized to contact you via unsecured e-mail. Warning: (a) E-mails can involve SUBSTANTIAL RISKS, e.g. lack of confidentiality, potential manipulation of contents and/or sender's address, incorrect recipient (misdirection), viruses etc. UBS assumes no responsibility for any loss or damage resulting from the use of e-mails.
UBS recommends in particular that you do NOT SEND ANY SENSITIVE INFORMATION, that you do not include details of the previous message in any reply, and that you enter e-mail address(es) manually every time you write an e-mail. (b) As a matter of principle, UBS does NOT accept any ORDERS, revocations of orders or authorizations, blocking of credit cards, etc., sent by e-mail. Should such an e-mail nevertheless be received, UBS is not obliged to act on or respond to the e-mail. Please notify UBS immediately if you received this e-mail by mistake or if you do not wish to receive any further e-mail correspondence.
If you have received this e-mail by mistake, please completely delete it (and any attachments) and do not forward it or inform any other person of its contents. For information on how UBS uses and discloses personal data, how long we retain it, how we keep it secure and your data protection rights, please see our Data privacy notice . © UBS 2026. The key symbol and UBS are among the registered and unregistered trademarks of UBS.
All rights reserved.
Sources & References
How we cover this story
Related news on this pair
European banks beat forecasts with third-quarter profit
Stronger eurozone bank earnings reduce recession risks and support EUR carry positioning, though lack directional guidance on rate expectations.
AI stocks haven't played by the normal valuation rules. Now that rates are higher, they may have to, says UBS
UBS caution on AI valuation sustainability in higher-rate regime pressures mega-cap tech, reducing carry appeal of USD-denominated growth assets.