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Analysts at Nomura note that yesterday, US President Trump instructed the United States Trade Representative (USTR) to proceed with 10% tariffs on roughly $200bn of imports from China effective 24 September and on 1 January 2019, the tariff rate will increase to 25%.

Key Quotes

“This announcement is a material escalation of trade tensions with China. In addition to the initial round of tariffs (25% from the US on $50bn in imports that went into effect on 6 July for the first $34bn and 23 August for $16bn) as part of a Section 301 investigation, today’s announcement brings Chinese imports subject to tariffs to $250bn.”

“In addition, President Trump threatened the third tranche of tariffs on approximately $267 billion of additional imports if China takes retaliatory action. If the third tranche is imposed, the US will have raised tariffs on the majority of US imports from China.”

“Overall, the announcement today was broadly in line with our trade policy outlook. As our baseline economic forecast already expects 25% tariff on $200bn goods, whether in full or by installments, this news is still within our expectations in terms of expected economic impact.”

“We see a notable risk that today’s announcement could lead to a material deterioration of business sentiment and the growth outlook.”

“Of course, China’s response is critical. It could target $100bn of US exports with an additional 20% tariff to respond “proportionately.” As the total scope of US tariffs exceeds China’s annual imports from the US, China could also consider non-tariff barriers.”

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