US: The Trump trade war intensifies – Rabobank

After US President Trump signed a plan to impose 25% tariffs on USD 60bn worth of Chinese products, Chinese export volumes could take a hit of USD 35bn, explains the research team at Rabobank.

Key Quotes

“The tariffs are expected to hurt the US as well, since US high-tech corporates and retailers have their products assembled in China to benefit from cheap Chinese labour.”

“China has few options to retaliate with tariffs without shooting itself in the foot. A large share of US goods shipped to Mainland China consists of necessity imports, such as medicine, (medical) instruments and soybeans.”

“Ironically, the trade ties between the US and the EU are much more susceptible to protectionist measures, with cars, electronic equipment and aircrafts (equipment) being the most vulnerable sectors. While Trump’s aim is not to provoke a trade war with Europe, things could spiral out of control. Integration of supply chains is limited, while there are alternatives for a substantial share of current imports.”

“While seeking exemptions from US steel and aluminium tariffs, it will be difficult for the EU to fully comply with the US demands to step up defence spending due to the massive costs involved.”

“At the current juncture, it is very difficult to predict how things will develop over the next weeks. However, in broad terms the recent string of events indicates that further escalation of trade hampering actions is more likely than we anticipated before.”

“If trade tensions escalate, we currently foresee two outcomes: one where Europe cooperates with the US and one where Europe alienates from the US. These two scenarios could have significant negative implications for world trade and the global economy. We deem cooperation between US-EU towards China currently as more realistic than the other way around.”