Macroscope | The worsening US-China trade war might cost the world much more than US$430 billion of lost GDP

President Donald Trump’s announcement last week that the US was going ahead with additional tariffs on US$200 billion of Chinese imports dashed renewed hopes that trade talks between Beijing and Washington officials would defuse tensions between the world’s two largest economies.

The market was fooled again by the mixed signals from the United States: the Treasury Department appeared eager to get the trade negotiations back on track, while the White House showed no intention of easing the pressure on China.

Such conflicting signs had also preceded the first round of tariffs in July. Back then, trade talks led by US Treasury Secretary Steven Mnuchin and Chinese Vice-Premier Liu He had appeared to be going smoothly until they were overruled by Trump, who fired the first shot in the trade war.

The latest action from the Trump administration has taken the trade conflict to a whole new level. Not only is the amount of goods subject to tariffs four times larger than in the first round, Trump has also threatened to slap punitive taxes on everything China exports to the US if Beijing retaliates.

That threat has proved ineffective, however. With China announcing counter-tariffs on US$60 billion of US products, we are now waiting for the next move from Trump that would officially turn the market’s worst nightmare into reality.