Expensive China

US-China trade war escalates

Image source: Matias Lynch, Everyonephoto Studio, Anan Kaewkhammul, Rameshwor Thapa, ENTERfobaE_Studio, pong-photo9, Flotsam - Shutterstock

What's going on?

America just raised the stakes bigly in trade discussions with China: on Sunday and Monday, the US president threatened to ramp up import taxes (a.k.a. tariffs) on Chinese goods.

What does this mean?

The US is proposing to raise existing tariffs on $200 billion worth of goods from 10% to 25% as soon as this Friday, with a further $325 billion of currently untaxed goods shortly facing 25% tariffs too (tweet this).

Threatening the twice-postponed escalation now may be due to frustration over the stalled progress of trade negotiations between the two countries. A trade deal remains elusive, despite the US reportedly accepting watered-down Chinese commitments on the thorny issue of intellectual property theft last week in a bid to reach a resolution. Still, with a 100-strong Chinese delegation expected in Washington on Wednesday, a speedy deal could yet avoid the fresh round of tariffs and remove those in place already.

Why should I care?

For markets: Stocks fell worldwide.

Chinese stocks fell more than 5% on Monday: their worst day in over three years. Higher tariffs on overseas goods would likely put pressure on Chinese consumer spending, which has only just started to brighten up again. European stocks fell too, led by auto companies (many of which produce cars in the US destined for China). And US stocks also wobbled: many American firms source materials from China, and higher costs would hit profits. Investors on Monday instead sought the relative safety of government bonds and “safe-haven” currencies like the Japanese yen.

The bigger picture: China makes the world turn.

Approximately 35% of the eurozone economy depends on China. If further tariffs do take hold, the hit to spending will likely lead to lower economic growth in both China and Europe. European economic data out last week was slightly better than expected – but with China lowering its own growth forecasts and the country’s latest statistics still disappointing, that may well be a false dawn…

Originally posted as part of the Finimize daily email.

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