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Tariffs of 10 percent on Chinese imports to the US are not large enough to have a significant impact on the Asian economy this year, analysts said, despite US President Donald Trump's claims that the pressure would be on China.
But even more worrying, analysts who spoke at the International Business Times warned that an escalation of the trade war could potentially disrupt global trade flows and darken the long-term economic outlook of 2019.
In an interview with Fox News on October 11, Trump said that tariffs had a huge impact, that the Chinese economy had fallen sharply and that it could do a lot more for China.
Arjen van Dijkhuizen, senior economist at ABN Amro, said the tariffs applied so far are not as important from a macroeconomic point of view, but that a new escalation will have a more serious impact .
"In our opinion, a 10% import duty is not so prohibitive in terms of real trade flows," said Dijkhuizen. "If you look at the typical fluctuations in exchange rates or input prices, the cost prices; and if you also consider some flexibility in the profit margins of importers and exporters; The 10% tariffs are not operational and do not have much impact on trade flows. "
DBS, whose analysts have visited China, said in a note to the IBT that there was a malaise in Beijing, but no panic about the current weakness of the currency, the l? corporate debt, slowing growth or tightening US monetary policy. He said expectations for considerable tax support were growing.
Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said China is slowing down but should still be able to manage its slowdown despite tariffs. On the other hand, he said, the effects of tariffs so far from the US business perspective were "probably in the category of major drawbacks" and not at the level that exceeds a rounding error in the GDP growth.
The Chinese economy grew 6.7% year-on-year in the second quarter of 2018, which slowed compared to the 6.8% growth of the previous period.
After China and the United States imposed 25% tariffs on their respective exports of $ 25 billion, the trade war between the two countries intensified when Trump added 10% tariffs. customs on imports worth $ 200 billion on September 17, expected to pass January 1, 2019.
In retaliation, China has imposed duties on $ 60 billion worth of US products. Trump had threatened to impose tariffs on the remaining $ 267 billion in Chinese imports if there were further retaliation from China.
According to Dijkhuizen, growth forecasts for China for 2018 were 6.5% in 2018, and there was expected downward pressure if no agreement was found and tariffs would be increased to 25% on January 1st of next year.
DBS said in its note that China's growth is expected to reach 6% if exports slow down in the fourth quarter of 2018 or early next year, although the chances of a stimulus policy spurred by credit is increasing. considerably in this case.
JANUARY 2019 TARIFF ACTION TO MITER
Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said that if tariffs on Chinese imports rose to 200 billion dollars in January and that tariffs remain above 200 billion dollars would be taxed in January, the effects will become more significant, slowing Chinese growth and adding to inflationary pressures in the United States
Carsten Hesse, European economist at Berenberg, has forecast the 25% negative impact on US growth of about 0.3 to 0.4% on US growth and 0.6% or more on the US Chinese growth. He added that the trade war with China would increase inflation in the United States, raise interest rates and give the Federal Reserve more ammunition to raise rates faster.
"And it's at that point that we think the next recession could occur, in 2021, when interest rates will have to rise by about 3.5 to 4% because of the rise of the inflation and recovery program, "he said.
Yung said the effects of further slowdown in China, accounting for more than 30% of total global growth, will have a coaching effect.
"Emerging markets are already under pressure because of the rise in the US dollar and the rise in US interest rates. The direct effects of US and Chinese tariffs on contagion are expected to be modest, but the general downward pressure on growth adds to an already challenging environment in emerging markets, "he said.
According to Yung, the Chinese currency, which has lost about 10% since the beginning of the year, could depreciate an additional 5 to 10% if the trade war intensified. The Chinese central bank has allowed the yuan to decline gradually. The yuan weakened to 6.9180 against the US dollar on Monday.
"If the United States can quickly take a positive direction with other trading partners and if friction is just a US-China problem, then it is likely to be contained without being too damaging. But, if the trade war intensifies on several fronts – the United States, Europe, etc. -, the combined effects could then become very significant, "said Yung Yung.
DBS said in its note that the Sino-US trade war would further worsen and that the negative impact on trade and other economic parameters would only gradually surface.
"If the Trump administration levies 25 percent of taxes on the rest of Chinese exports on January 1, 2019, this will be the point of maximum tension to force Beijing to adopt a policy. Until then, there will be no material impact on China's numbers, "he added.
DBS said its analysts have seen Chinese companies consider a combination of margin compression, productivity enhancement and trade re-routing to deal with impending short-term tariffs. "What was troubling was the growing sense that there were no short-term solutions to China-US. conflict, "he said.
"DO NOT EASY WITH CHINA"
Some analysts are surprised at how much the trade dispute has deteriorated, but believe that a stronger US economy and less pressure from Republicans and Congress could delay an agreement with China.
Hesse de Berenberg said he expected a meeting and an agreement between Trump and Chinese President Xi. "It's clearly Trump calling here. He could have changed his mind, but the US economy is doing well, the S & P is doing well, while Chinese markets are collapsing, and Trump knows he's in to win this trade war. As long as it is so, there is no reason to change it. "
"The trade dispute with China is deeper, not only because the United States has a huge trade deficit, but also by accusations that China is stealing technology and not giving US companies the same access to their markets, "said Hesse.
"It's beyond the problems with Europe, Mexico or Canada. That's why an agreement with China is more difficult than it has been with other countries – just fewer problems, "he added.
"He (Trump) wants the United States to stay in the lead economically and not be picked up by China. If he can delay it by a few years, then he thinks he's done the right thing. Maybe China offers so much that Trump will think he can sell himself a winner, "said Hesse.
ABN Amro's Dijkhuizen said: "The market seems relatively relaxed as it's three months ago and we have the upcoming mid-term elections. At the end of the year, there is also the G20 summit.
DBS also believes that the markets have predicted a "no deal" in the short term. "At present, the tariffs on half of Chinese exports to the United States have already been announced and the mid-term elections in early November, we believe that the other half of the customs duties on exports will go beyond this year and will probably be long-term business, "said DBS in his note.
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