Search ForexCrunch

Analysts at Nomura explained that trade policy Trade developments continued to drive headlines last week as President Trump directed the USTR to raise the proposed tariff rate on $200bn in Chinese imports from 10% to 25%, escalating the ongoing trade dispute.  

Key Quotes:

“However, China’s response appeared more muted. In a press release, China’s Ministry of Commerce announced that, were the US to follow through on the 25%/$200bn threat, retaliatory tariffs would target $60bn in US exports at various tariff rates ranging from 5-25%. Thus, the maximum tariff revenue raised by China’s retaliatory tariffs, assuming a 25% rate for all products, would be $15bn, less than the $50bn (25%/$200bn) under the latest US proposal or the $20bn from the original proposal (10%/$200bn).  

Of course, China can still resort to nontariff barriers in response to US protectionism and may not limit its response to the list released today. It is possible that this somewhat restrained response from China could provide an opening for avoiding further escalation from the US side.  

NEC Chair Kudlow acknowledged that the response from China, relative to earlier retaliation, was not proportional when he noted that “it’s actually not tit-for-tat”¦ it’s actually a much lower number than we’ve been looking at.” The uncertainty around the US-China dispute remains significant. The USTR is not expected to finish the review process for the $200bn until 6 September. There is time for further negotiations.  

However, given the Trump administration’s strong demands that China make fundamental changes to its economic policy, not just an increased effort to reduce its trade surplus with the US, the outcome of any talks remains highly uncertain.”