US: Trade friction escalating with China – Deutsche Bank

Analysts at Deutsche Bank point out that the US Trade Representative office has released a list of an additional $200bn worth of Chinese imports to be hit with higher tariffs of 10%, although a final decision on the tariffs is not expected until after the public consultations period which ends on 30th August.

Key Quotes

“The affected product list includes consumer goods such as clothing, refrigerators but excludes items such as mobile phones. In terms of initial reactions, China’s Commerce Ministry noted it is “shocked” by the US actions which “were hurting China…the entire world and the US itself” and that it will have no choice but to respond to the US move. Back in the US, the Senate Finance Chair Hatch called the proposal “reckless”.”

“DB’s Peter Hooper and team have recently published a note looking at the impact of trade frictions on the US macro economy. They noted that higher tariffs on $250bn worth of Chinese goods and $350bn worth of automotive products could reduce imports and lift the US GDP by c0.5ppt. However, this gain is likely to be swamped by various negative effects if the tariffs are actually implemented. These include: i) -0.4ppt hit to US GDP from higher prices and lower consumer spending, ii) -0.6ppt on US GDP from retaliatory tariffs from China and the EU as it depresses exports and iii) -0.5ppt hit to GDP from the confidence hit to businesses and households, particularly the flow on drags on investments and consumption spending.”

 

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