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In view of Sean Callow, Research Analyst at Westpac, the ongoing trade spat between US and China, does not seem excessive to call it a war.

Key Quotes

“On Friday, President Trump announced tariffs on $50bn of goods imported from China, imposed to punish China for “unfair practices”¦with respect to technology and innovation.”

“China was ready for these widely-flagged tariffs and pledged tariffs on $50bn of US imports if the US tariffs proceed. Not wasting time, on Monday President Trump said he had “directed the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs” at a rate of 10% and if China “increases its tariffs yet again”, the US will pursue “additional tariffs on another $200 billion of goods.”

“So that’s potentially $450bn of US imports from China facing tariffs. US goods imports from China in 2017 totalled $505bn. If that’s not a trade war, then it’s certainly quite a scuffle. Of course, many still hope that President Trump is just using these threats as a negotiating tactic, even as actual tariffs take effect and China shows no sign of backing down.”

“But there’s a different reason to play down fears of a trade war: the US just isn’t reliant on exports for growth. As the chart shows, net exports have been a trivial drag on US GDP growth in recent years and should remain so in 2019. Consumption, investment and loose fiscal policy should keep the US economy growing comfortably faster than the Fed’s estimate of potential growth, which is just 1.9%.”

“This is not to dismiss the US-China trade battle. But neither economy will be derailed and the rest of the world is not taking the US lead in rejecting WTO trade rules, meaning there is little risk of a global trade war.”