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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