New US-Sino trade truce: Tougher talks, more economic damage

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Despite the White House’s efforts to lobby other countries against Huawei, President Trump also said that US companies can supply the technology giant, which the US, Department of Commerce blacklisted last month.

After Osaka, the negotiators face challenging obstacles, despite still another temporary timeout. Deep bilateral disagreements prevail about major structural issues.

But what’s the current economic impact of the new trade truce?

Limited short-term impact on China

In China, the most recent US tariff hikes on $200 billion of Chinese US exports is expected to penalize about 0.1% of China’s GDP growth in the coming year. That is enough to create significant concern, but not sufficient to cause substantial damage – yet.

Even if the US would impose 25% tariffs on all goods from China, the largest Chinese companies would likely adjust, thanks to their domestic focus.

As the US-based Standard & Poor’s has stressed, half of the rated Chinese companies are state-owned-enterprises (SOEs), which operate in sectors with limited US exposure.

Moreover, the vital property sector is also reliant on domestic demand.

Nevertheless, the secondary effects of a protracted and broader trade war could prove more challenging over time. In China, such a scenario could mean greater shifts in supply chains, currency volatility, eroding market confidence.

Despite Trump’s bravado, the US economy is far from immune to trade-war damage, however. In fact, the trade wars’ adverse impact is only beginning to bite in the US.

 

Broader impact on US industries

In the US, the tariff increase from 10% to 25% on $200 billion of Chinese imports could directly penalize some 0.3% from growth in the coming year.

Typically, US companies that garner a significant share of their revenues from China will take the most severe hits. That’s why Trump wants China to buy … Read More...