‘No disaster scenario’: trade war isn’t denting economists’ optimism about US growth

Escalating tariffs are just one of many factors that can move markets, analysts say

PUBLISHED : Friday, 28 September, 2018, 5:16am
UPDATED : Friday, 05 October, 2018, 5:37pm

Economists at one of the world’s largest investment research firms remained optimistic on Thursday about US economic resilience in the face of rapidly deteriorating trade relations with China.

“We really haven’t seen much impact so far from the trade war,” said Paul Gruenwald, chief global economist at S&P Global, a publicly traded corporation that offers financial data, benchmarks and analytics. “US growth is above 4 per cent, which is the highest in several years [and] about twice the ‘speed limit’ estimated by most economists to be 2 per cent or lower.”

Gruenwald’s comments, made at an event hosted by S&P Global at its New York headquarters, came a few days after the Trump administration implemented 10 per cent tariffs on US$200 billion of Chinese imports, which could rise to 25 per cent in the new year.

Watch: Trump imposes another round of tariffs on China

Beijing, while consistently articulating its willingness to re-enter negotiations, has retaliated at each stage of escalation. On Monday, it responded to Washington’s latest action with duties of between 5 and 10 per cent on US$60 billion of US imports.

Washington has unleashed the barrage of punitive tariffs as it accuses Beijing of overseeing the forced transfer of US technology in exchange for market access, cybertheft with national security implications, and using other barriers that disadvantage US firms.

US President Donald Trump has frequently cited redressing his country’s US$335 billion trading deficit with China as another driver of the measures, while Chinese state media have charged his administration with seeking to contain China’s rise.

Can trade war rivalry reset US-China relations for the better?

Because of uncertainties about the administration’s ultimate objectives in its confrontation with China, there had been fluctuations in so-called “sentiment indicators”, said Gruenwald, referring to metrics that measure confidence in market conditions. “But it’s certainly not the disaster scenario.”

“Trade doesn’t change long-term growth,” he said, instead attributing economic growth to a country’s population, its capital stock and its technologies.

Qualifying the general optimism about the economic fallout from the trade war, S&P Dow Jones Indices’ managing director Jodie Gunzberg said it was challenging for observers to determine with certainty the tariffs’ effects on equities markets because so many other factors affect investor confidence.

“A lot of other things are driving the stock market,” she said, citing the strong dollar, tax cuts and rising interest rates as examples of positive influences that could conceivably cloud or counter the effects of the trade war.

Watch: US trade war has little impact on Chinese growth

US energy exports are likely to remain relatively impervious given the sector’s adaptability, said Mark Schwartz, global head of analytic content at S&P Global Platts, the corporation’s provider of energy and commodities information.

In the crude oil market, for example, a dip in Chinese purchases of US goods would be unlikely to affect the average global price, he said, given that China could easily procure from other regions such as West Africa, and the US would have no shortage of buyers to take China’s place.

“The change we’d be talking about there would be dimes, not dollars,” he said.

Bullish US markets face tipping point as trade war pain deepens

Beyond the direct impact of import duties, analysts on Thursday drew attention to the prospect that Beijing could resort to qualitative modes of retaliation once it has exhausted all tariff measures at its disposal.

That could be soon given that it has already covered around 85 per cent of the US$130 billion in US imports. US tariffs currently cover less than half of the more than US$500 billion worth of goods it imports from China.

“They’re running out of space,” said Terry Chan, managing director of S&P Global Ratings. “The fear in the market is that they will switch to non-tariff action, potentially on services and investment.”

A recent report issued by the American Chamber of Commerce in Shanghai, which represents about 1,500 US companies operating in China, found that a slim majority of businesses reported an increase over recent months in non-tariff barriers affecting their operations.

Most cited government inspections as an increasing problem, and others reported slower customs clearances and more lengthy processes for obtaining licenses.

Modernise WTO instead of waging solo trade war, ex-officials urge Trump

Speaking on Thursday, Gruenwald called on people to “listen to the folks who actually are on the ground in China doing business.”

Referring to the forced technology transfers, reciprocal investment opportunities and a level playing field for domestic and foreign companies, he said: “They don’t think the trade war is the right way to have the discussion about the right issues.”

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