Faced with new punitive tariffs, China seeking closer ties with EU and other key economic areas Following President Trump's announcement in June, the US administration released a list of targeted items for the new punitive tariffs against China this week. In a worst-case scenario, this list should represent annual trading volume of approx. USD 200bn. The affected product groups are food and beverages, chemical products, electronics, vehicles, metals, machinery and a variety of other goods. However, the new punitive tariffs have not yet been implemented. Once the public consultation process has been completed, the tariffs (a rate of 10% is targeted) could come into action as early as August 30. China has announced that it will be responding to the impending increase of punitive tariffs with ‘quantitative' and ‘qualitative' measures.
Since this step had to be expected, it caused no further significant negative reaction in the markets. It now remains to be seen whether China's leadership can succeed in reducing the scope of tariffs through negotiations or possibly postponing their implementation. Given the current US administration's already proven lack of willingness to compromise, it is, however, highly questionable whether there is a real chance for China to prevent the additional punitive tariffs. While Trump wants to enforce stronger openings for US investors, China could seek closer ties to the EU economically. In light of the trade dispute tensions, the upcoming EU-China summit in Beijing, scheduled for next week (July 16), is particularly important since, among other things, bilateral trade (the EU is China's main trading partner) and investment relations are on the agenda. In particular, negotiations on a bilateral investment treaty should be accelerated, which could further deepen economic relations between China and the EU. According to media reports, China is also currently seeking to additionally improve trade relations with other key economic areas (such as India or Japan). With its strategy, the US is therefore risking losing access to the important Chinese domestic market to competitors from Europe and other parts of the world. We currently continue to expect no negative impact from the trade dispute on the immediate growth momentum of the Eurozone, because development in domestic demand is stable. The trade war between China and the US is probably even an opportunity for the Eurozone to accelerate its export growth. Producers located in the Eurozone could for example use their relative cost advantage resulting from the tariffs to gain export market shares in China and the US. Italy in particular could benefit, due to its high export similarity with China1).
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