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Assessing the potential impact of increased tariffs on Chinese imports, ABN AMRO’s Senior Economist  Bill Diviney argues that a  25% tariff imposed on all Chinese imports would boost core inflation by a cumulative 30bp over 2019-20.  

Key quotes

“This impact may seem modest, but it reflects a number of factors: 1) that the impact is likely to be blunted by yuan depreciation versus the US dollar; 2) that core goods has only a 25% share of the core CPI basket (the remainder being services), and 3) that Chinese imports represent around 18% of core goods consumption.”

“As with higher wage costs, it is possible that businesses try to absorb these higher prices, particularly if they do not believe the tariffs are permanent and could be revoked once an agreement is reached between the US and China. As such, the impact might be even less than the 30bp indicated.”