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Even though the latest tariff hike (from 10% to 25% on $200bn of Chinese imports) is likely to have a modest direct impact on Chinese and US GDP (-0.2%), neither side has any interest in seeing the trade war intensify for two main reasons. The first being thaWhat is the impact of tariff hikes?
Even though the latest tariff hike (from 10% to 25% on $200bn of Chinese imports) is likely to have a modest direct impact on Chinese and US GDP (-0.2%), neither side has any interest in seeing the trade war intensify for two main reasons. The first being that China has had to implement a major stimulus simply to stabilise its growth and second the effects of tax cuts are waning in the US. As such, more protectionist measures could push growth below its potential level and severely damage the job market just before elections. The increase in tariffs from 10% to 25% will only apply to newly imported goods. It does not affect goods already in transit. Thus the economic impact of new tariffs will most likely be felt until June of this year. This leaves China and the US with time to reach an agreement. The fact that the Chinese did not leave the negotiating table following Donald Trump’s Tweets is good news from this perspective. Last week’s modest market correction was a result of investors believing that the outcome of negotiations between China and the US will ultimately be that of a deal. Nonetheless, the Tweets posted by Donald Trump just before the Chinese delegation’s arrival... Read more
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