US: GDP could fall 0.2% if China retaliates – Standard Chartered

Analysts at Standard Chartered suggest that US tariffs on USD 60bn of Chinese imports could cause 5% fall in China’s exports to US and 0.15% drop in GDP.

Key Quotes

“Announcements from both the US and China have triggered fresh concerns about a potential trade war. On 22 March, US President Trump signed a memo that could impose a 25% tariff on up to USD 60bn of imports from China (but only after a 60-day consultation period). In response, China’s Commerce Ministry said “China will take all necessary measures to defend its legitimate rights and interests”. The development is in line with our long-held argument that US-China trade frictions will intensify this year, though a full-blown trade war remains a tail risk.

• We maintain our China GDP growth forecast of 6.5% given strong Q1 growth, uncertainty on US remedies
• China’s economic dependency on the US fell from 6.3% of GDP in 2006 to about 3.0% in 2017
• US economic dependency on China rose steadily from 0.1% of GDP to 0.7% during 2000-14
• US GDP could fall 0.2% if China retaliates, banning US food, transport imports; 0.9% if all imports banned.”

“In short, we estimate that the 25% tariffs on USD 60bn of Chinese imports could result in a 5% fall in China’s total exports to the US. Given that US demand accounts for about 3.0% of China’s GDP, higher US tariffs, if implemented, could lead to a 0.15% drop in China’s GDP. We maintain our 2018 China GDP growth forecast of 6.5% in light of the economy’s strong Q1 performance and given uncertainty about the eventual trade remedies by the US.”