According to analysts at Nomura, the immediate risk of imposing trade tariffs on Chins is from increased escalation beyond the initial round of tariffs and China’s subsequent retaliation.
Key Quotes
“To that end, the release of additional details on the initial round of tariffs was accompanied by a statement from President Trump where he noted that:
“The United States will pursue additional tariffs if China engages in retaliatory measures, such as imposing new tariffs on United States goods, services, or agricultural products; raising non-tariff barriers; or taking punitive actions against American exporters or American companies operating in China.”
“Shortly after these developments, China announced that it would retaliate proportionately to the US tariffs, raising the risk that the US imposes additional tariffs in an escalating cycle. China’s tariff announcement mirrors that of the US: a 25% tariff on $34bn in US exports starting 6 July with an additional $16bn targeted but on hold. The targeted products by China include agricultural products and autos.”
“A recent Reuters report noted that the administration is close to finishing a list targeting an additional $100bn in imports from China, indicating that the risk of a rapidly escalating trade conflict is increasing. The next few weeks will be important. Further escalation could be postponed if the US and China can make progress with ongoing trade negotiations, an increasingly difficult task. With the US-North Korea summit behind us, it appears that White House officials feel newly emboldened to take a hardline approach towards China.”
“The next calendar deadline will be 30 June when the administration is scheduled to release a series of investment restrictions and export controls for “Chinese persons and entities related to the acquisition of industrially significant technology.”
“Overall, these developments raise the risk of a materially disruptive trade conflict between the two countries. Business confidence and financial conditions could be the first indicators to feel any negative impact from the worsening trade outlook.”
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