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In view of Bilal Hafeez, Research Analyst at Nomura, the US has launched a trade war against China and as admittedly, President Trump campaigned on “fair trade” and has over the decades argued that the US has been exploited by other countries.

Key Quotes

“The latest round in the trade war has been the announcement of 10% tariffs on an additional $200bn of imports from China. This comes on top of tariffs on $50bn of imports from China announced last Friday.”

“China has responded to the latest round with a threat of retaliation. The trouble is that the numbers are starting to matter. US tariffs on a total of $250bn of Chinese imports would come to 50% of total imports from China and would have to include many consumer products that only China produces. This would likely translate into higher inflation.”

China cannot match one-for-one

  • Meanwhile, China only imports $190bn of goods and services from the US, and so China would not be able to find the reciprocal $250bn worth of US imports to impose tariffs on.
  • It is no wonder that China talked about taking “qualitative” as well as “quantitative” measures against the US. What these “qualitative” measures are is hard to gauge, but they could include restrictions on US visas, and US investment into China.
  • And there is always the possibility of weakening CNY to offset some of tariffs. However, some of these could run counter to long-term Chinese goals of capital account liberalisation and the internationalisation of CNY.”