Markets: Trade policy and China are major risks - Westpac

Bill Evans, chief economist at Westpac, suggests that while ongoing trade tensions will unnerve markets, it seems unlikely that the Chinese authorities will be prepared to make the specific changes to their industry and trade policies that would satisfy the US.

Key Quotes

“These would include changes to forced technology transfer, intellectual property protection, non–tariff barriers, forced joint venture investment, cyber intrusions and government industry subsidies.”

“Consequently, trade disruptions will be a certain theme through 2019 although President Trump and China are likely to find ways to avoid the US imposing tariffs on the remaining goods imports not affected by tariff decisions to date (around $200 billion, mainly consumer goods compared to the current tranche which is only around 25% consumer goods). However, the risk is the most recent 10% tariff applied to around $200bn of trade will be increased to 25% well before mid-year.”

“We have seen that trade concerns have also weighed on the Chinese economy. Other more significant drags on Chinese growth have been winding back the shadow banking system and pollution policy.”

“We expect credit policies, an easing in pollution restrictions and direct fiscal stimulus will all be used to maintain a managed slowdown in China. We are targeting a 6.1% growth rate in 2019 down from 6.6% in 2018.”