Macroscope | Is Trump escalating the US-China trade war with shock tariffs or is he simply posturing?
- If Trump means to push the US-China trade war to new heights, the global economy could be in for a catastrophic shock. So let us hope the US president is merely bluffing
On Tuesday, the US government said it would delay till December 15 plans to impose new tariffs on certain products while removing some products from the tariff list altogether.
The sudden turn of events caught many investors off guard and drove financial market volatility to multi-month highs.
If the levy kicks in on schedule – for US$110 billion of goods on September 1 and another US$160 billion of goods on December 15 – Chinese exports are likely to feel a direct hit in the fourth quarter, with subsequent indirect impact filtering through early next year. In the coming 12 months, the tariff could shave 0.3 percentage point off China’s economic growth. Without additional policy support, the Chinese economy is unlikely to stabilise in the near term and risks falling below 6 per cent growth in the coming quarters.
The US will not come out unscathed either. Given that the list of Chinese imports to be taxed contain many household items that are difficult to substitute, consumers can expect to be hit harder than by earlier tariffs.