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The China-US trade war has escalated with the US planning to levy tariff on USD 200bn of Chinese goods and China vows retaliation, according to Amy Yuan Zhuang, Research Analyst at Nordea Markets.

Key Quotes

“On Tuesday evening local time the US Commerce Department released  a list of Chinese goods worth USD 200bn  that will be subject to 10% tariff. It could take effect after public consultations end on 30 August.”

Factoring in the USD 34bn of Chinese goods already subject to 25% tariff and the USD 16bn expected in late July that would bring the Chinese goods affected to USD 250bn, about 50% of US imports from China.”

China vowed to retaliate this “totally unacceptable” move but offered no details. We still think that non-tariff measures such as business and investment regulation are more likely than Treasury dumping and currency devaluation.”

“The CNY and CNH weakened about 0.5% against the USD on the news.”

“The new round of tariffs, targeting USD 200bn of Chinese goods, will no doubt inflict much more pain on Chinese growth  than the initial USD 34bn. However, it does not leave the US economy unaffected.”

“The USD 200bn of Chinese goods affected by the new round of tariffs includes mostly basic consumer goods such as apparel, furniture and electronics. Given that these goods account for a sizable share of US imports from China and the relative large weight in the US consumer price basket,  the new round of tariffs could have a significant impact on consumer prices and thereby possibly influence the FOMC rate decisions.”