US-China trade war escalates

12 / 07 / 2018 | Notizie sul mercato
Global financial markets were rattled on Wednesday July 11th 2018 after the United States (US) administration decided to escalate the trade war with China. The two largest economies in the world have become tangled in a trade conflict in the last few months since the US President Donald Trump declared his intention to reverse the situation regarding the trade deficit with the US trade partners. 

On Tuesday July 10th the US administration delivered another blow to the country’s trade relationship with China when it issued a list of thousands of Chinese imports the administration wants to hit with the new tariffs, including hundreds of food products as well as tobacco, chemicals, coal, steel and aluminium. The US Trade Representative Robert Lighthizer, answering reporters’ questions, said that his country was acting because China hadn’t acknowledged all previous warning. 

More specifically, Robert Lighthizer noted that “for more than a year, Donald Trump’s administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition. We have been very clear and detailed regarding the specific changes China should undertake. Unfortunately, China has not changed its behavior- behaviour that puts the future of the US economy at risk.” 

The news shocked the global financial markets that saw the US President Donald Trump taking the trade dispute to the point of no return as Bloomberg’s reporters wrote in their report on July 11th 2018. The famous financial media outlet noted that the new tariffs could force the Chinese administration to retaliate with dangerous consequences. The report focused on the problematic position of the Chinese President Xi Jinping towards his political comrades who ask for immediate action. 

“He’s already imposed retaliatory duties targeting Trump’s base including Iowa soybeans and Kentucky bourbon. Yet, matching the latest U.S. barrage would force China to either levy much higher tariffs or take more disruptive steps like cancelling purchase orders, encouraging consumer boycotts and putting up regulatory hurdles. Not only does that risk provoking Trump to follow through on threats to tax virtually all Chinese products, it could unleash nationalist sentiment on both sides that fuels a deeper struggle for geopolitical dominance,” is a quote from the Bloomberg report. 

Analysts at Nomura, which is one of the largest financial services provider headquartered in Asia, believe that China may move against the US to counterbalance the heavy tariffs imposed on its products. “We expected some response in the wake of China’s reaction to the first round of US tariff increases. However, the release of this list, only four days after the first round of tariffs took effect, indicates that trade protectionism may escalate beyond the initial round of tariffs imposed last week. The new list, targeting $200bn with a 10% tariff, is almost equally split between capital and consumer goods. Thus, if these tariffs do indeed take effect, there would likely be a larger impact on consumers than in the initial round,” Nomura’s economists noted. 

Rabobank’s research team published its report on the US tariffs on July 10th 2018 commenting that the US-China trade war is escalating adding that China probably won’t be able to impose equal tariffs because it doesn’t import an equal volume of products from the US. “Covered are low-tech goods as well as high-tech items squarely aimed at slowing China’s march to ‘2025’ industrial supremacy. If we see these duties kick in, nearly half of all Chinese exports will be under tariffs. China has immediately responded that it will “fight fire with fire” – and yet it can’t put USD200bn of tariffs in place as it doesn’t buy USD200bn more of US goods!”

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