India continues to benefit from the de-risking of China supply chains, the Jefferies report said
India remains one of the key structural winners in a rapidly reordering global trade system, Jefferies said in its latest 'Greed & Fear' report, even as the US intensifies protectionist trade deals and China grapples with persistent deflation and weak consumer demand.
The July 31 note reiterates Jefferies’ long-standing overweight on India, calling it a structural growth story with strategic insulation from tariff-led trade disruptions.
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India continues to benefit from the de-risking of China supply chains, mentioned the report.
While India-specific data points were not the focus in this edition, Wood’s commentary comes at a time when large parts of Asia face pressure either from deflation (China) or political-economic “shakedowns” (US trade partners), reinforcing India’s appeal as a relatively stable and demand-driven economy.
US shifts to coercive, transactional trade policy
The note sharply critiques the recent US-EU trade framework announced at Trump’s Turnberry golf course, which includes:
- A 15 percent tariff on EU exports to the US (lower than the previously threatened 30 percent)
- Continued 50 percent tariffs on steel, aluminium, and copper
- EU commitments to purchase $750 billion worth of US energy and make $600 billion of investments in the US by 2028
- A vague but stated purchase of “significant amounts” of US military equipment
Elimination of EU tariffs on US industrial goodsJefferies flagged these as political arrangements disguised as trade deals. Such commitments, especially energy and defence buys, are outside the prerogative of the European Commission and rely on private sector or sovereign country-level implementation.
Boeing diplomacy: Countries pressured to buy American
The report highlighted a series of defence and aviation deals tied to recent US negotiations:
- Indonesia and Japan have reportedly agreed to buy 50 and 100 Boeing aircraft respectively.
- IAG Group (British Airways’ parent) ordered 32 Boeing jets worth $10 billion.
- Qatar Airways placed a $96 billion order for 160 Boeing jets in May, with an option for 50 more.
- Saudi Arabia’s AviLease, Abu Dhabi’s Etihad, Bahrain’s Gulf Air, and Vietnam Airlines have also confirmed large Boeing orders.
This reflects a growing breakdown of the post-war GATT system, mentioned the note, referring to the General Agreement on Tariffs and Trade signed in 1947.
US economy: capital boom despite slowing GDP
Despite these protectionist moves, the US economy could be entering a new capital spending upcycle. While real GDP growth slowed to 1.2 percent (annualised) in H1 2025 from 2.8 percent in H2 2024, Jefferies pointed to robust private investment data:
- US private construction spending on manufacturing facilities rose from $98 billion (Jan 2022) to $226 billion (May 2025)
- Electronics manufacturing capex jumped fivefold to $115 billion from $26 billion in the same period
- US machinery imports (excluding transport) rose by 27% to $1.06 trillion (annualised) as of May 2025
- Commercial bank loan growth accelerated to 4.2 percent YoY (mid-July 2025), with commercial and industrial loans growing 3.7 percent YoY
However, market breadth remains limited. While the S&P 500 hit a record high, the Russell 2000 remains 9.5 percent below its November 2024 peak, despite a 28.8 percent rebound from its April 2025 low.
Jefferies warned that the ongoing capital rush into AI infrastructure is reminiscent of the 2000 tech bubble. The ‘me-too’ binge into large language models may lead to a misallocation of capital of epic proportions.
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China focuses on deflation, not retaliation
Unlike other nations, China has not capitulated to US pressure, with US-China talks in Stockholm likely to result in a postponement of the August 12 tariff deadline.
Beijing, meanwhile, is focused on tackling deflation and “disorderly competition” through what Jefferies described as a softer version of past supply-side reforms:
- PPI inflation has remained negative for 33 straight months (down 3.6 percent YoY in June)
- Nominal GDP growth has been below real GDP growth for nine quarters.
- Industrial profits fell 4.3 percent YoY in June and 9.1 percent in May
- Residential property sales fell 7.3 percent YoY by volume and 12.6 percent YoY by value in June
- Weekly secondary home sales in 13 cities dropped 7 percent YoY in July, reversing earlier gains
- Urban unemployment stands at 5 percent, and the employment sub-index of consumer confidence hit 71.4, close to a record low
The government’s “anti-involution” campaign targets excessive price cutting across sectors, including internet platforms, EVs, and solar manufacturers. A draft amendment to China’s Pricing Law (the first since 1998) proposes bans on below-cost selling, unless part of clearance or seasonal promotions.
“This is not just about legacy sectors like coal or steel, but includes high-growth areas too,” Jefferies said, adding that enforcement remains light-touch for now.
Still, the firm is cautious. “Unlike 2015-18, today’s efforts lack the offsetting demand from housing schemes or local stimulus. That’s why results remain limited,” the note added.
Even manufacturing capex may be cooling, despite official FAI growth of 7.5 percent in 1H25:
- Outstanding medium- and long-term bank loans to manufacturers grew just 8.7% YoY (vs. 11.9% in 2024 and over 30% in 2020–23)
- Net new bank lending to manufacturing was RMB 921 billion in 1H25, down from RMB 3 trillion in 2023
One portfolio change: Jefferies adds solar stockReflecting a selective positive view on China’s solar sector, Jefferies added Daqo New Energy to its long-only China equity portfolio with a 3 percent allocation, cutting Alibaba, AIA, and Fuyao Glass by 1 percent each.
