So what are the next steps in the China trade war? Well, President Trump confirmed tariffs on another $257 billion worth of imports from China that are ready to be implemented.
This round will greatly impact the typical American household, but there is hope. This would be lower oil prices and planned tariff cuts in China. Hopefully, these factors would offset inflation fears in the US.
With trade disputes between Washington and Beijing ramping up, headlines about tariffs on incoming Chinese products might seem standard. However, a new round of escalations could be a game changer that would have a broad impact on the US economy.
Potential Next Round of Tariffs are Estimated to be More Damaging to US Economy
Citi Research analysts believe that additional tariffs on China could greatly accelerate inflation. President Trump has mentioned that tariffs on approximately $257 billion (2017 numbers) worth of Chinese products would be instated, as he tries to change unjust trade practices.
So, how would this round be different? Current import taxes on roughly $250 billion worth of products effect less than half of Chinese imported goods, per Citibank Research report.
However, the next round of tariffs would place a tax on every Chinese product. Existing tariffs will likely double to 25% from 10% in the new year if these issues aren’t solved.
Also, many of the remaining products aren’t easily found outside of China. According to Deutsche Bank analysts, China holds a significant market share on common American imports like leather products, furniture, and televisions.
If there is no change in the exchange rate, Citi believes the next round of duties will have 10 times the inflationary impact on the first round of tariffs within a year. The Chinese yuan fell to a key level of 7 per dollar, which is the weakest it’s been in a decade.
US-China to Discuss Potential Trade Deal in Argentina this Month
Trump will meet with the Chinese President at a multilateral summit in Argentina this month. Trump recently mentioned on Fox News that there will be a “great” deal. If these negotiations fail, the next round of tariffs could be declared as soon as December. The White House replied with no further comment.
On the other hand, lower oil prices and general import tariff cuts may ease inflation from retaliatory duties. In early 2018, Beijing announced it would lower the average tariff rate on imports from most of its trading allies. Nomura Research Analysts stated they believe the overall inflation risk remains contained so far.
Due to a contracting economy, the Chinese have been frequently implementing new expansionary policies. According to government data, China’s GDP grew at one of the slowest paces in nearly a decade during the third quarter 2018. However, exports have beaten expectations.
Article By: Dalton Brewster
