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Analysts at Nomura explained that in reaction to the US decision to initially start with a 10% tariff on $200bn imports from China yesterday, China announced retaliatory tariffs of 5% or 10% on an additional $60bn imports from the US, taking effect on 24 September, as China had previously announced on 3 August.

Key Quotes:

“Although President Trump took to Twitter and warned of more retaliatory measures against China around the same time Beijing’s action was announced, as of the time of this writing there has been no official statement released from the Trump administration on a threatened third tranche of tariffs on $267bn imports from China.”

“Beijing’s announcement today brings the total amount of US goods subject to Chinese tariffs to about $110bn. Importantly, China chose not to match the US tariff rate of 25% on $200bn  imports,  and set the rates at 5% or 10% instead. Thus, China’s retaliatory measures appear more measured and consistent with its restrained approach so far in dealing with China-US trade tensions.”

“It appears likely that the tariff rates on US products will be raised once US tariff rates on Chinese goods are raised to 25% on 1 January 2019. In the statement, Beijing indicated that it hopes to have dialogues while threatening further tariffs if the US retaliates. However, given  continued  escalation in trade tensions by the US, it remains unclear if any high-level US-China negotiation ahead of the next G20 leader summit from 30 November to 1 December will yield any material results. While survey measures have been resilient despite ongoing tensions, we continue to see a notable risk that the recent escalation could lead to a material deterioration of US business and consumer sentiment.”

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