Fresh Outbreak Of US-China Trade Tariffs
New US Tariffs
September has started with a bang as the first portion of the new US trade tariffs on Chinese goods kicked in on Sunday. The Trump administration pressed play on 15% tariffs on around $110 billion worth of Chinese goods. The goods under the new levy are predominantly consumer goods, ranging from home textiles and footwear through to tech products such as the Apple Watch.
A further portion of goods, totaling around $160 billion, including items such as laptops and cell phones, will come under 15% tariffs as of December 15th as per trump recent announcement. Trump explained that he was delaying part of the tariffs as a gift to US shoppers during the Christmas shopping season.
The fresh batch of tariffs, which has come in 5% higher than the initially planned 10% levies has fuelled fresh concerns over the prospect of a US-China trade deal. Negotiators from the world’s two largest economies are due to meet this month for a further round of face to face trade talks.
China News Media Comments
Shortly after the tariffs went live, Xinhua News Agency noted:
“China’s determination to fight against the US economic warmongering has only grown stronger, and its countermeasures more resolute, measured and targeted”.
The commentary went on to say that something the “White House tariff men should learn is that the Chinese economy is strong and resilient enough to resist the pressure brought about in the ongoing trade war.”
China immediately responded to the tariffs with tariffs on a range of $75 billion worth of goods. The new tariffs include an extra 10% on American pork, beef, and chicken, and various other agricultural goods. Soybeans have also been hit with an extra 5% tariff on top of the existing 25%. Starting in mid-December, American wheat, sorghum, and cotton will also have a further 10% tariff applied. Finally, a new 5% levy on US crude oil will start as of September.
China Appealing For Calm
Worryingly, the Chinese response stands contrary to comments from Chinese Ministry of Commerce spokesman Gao Feng, who said last week:
“We firmly reject an escalation of the trade war and are willing to negotiate and collaborate in order to solve this problem with a calm attitude… China has plenty of means for countermeasures, but under the current situation, the question that should be discussed right now is about removing the US′ new tariffs on $550 billion Chinese goods to prevent escalation of the trade war.”
Warnings Over US Economic Damage From Trade War
The non-partisan Congressional Budget Office stated in August that, by 2020, Trump’s trade war will have reduced the level of real GDP in the US by around 0.3%, wiping around $580 annually from the average household income.
Indeed, some leading industry experts feel that figure is low. J.P Morgan released a note last week estimating that the trade war will cost the average US household around $1000 a year, which was based on the initially planned 10% tariffs. At 15%, that figure will be higher.
IMF Warns Of Global Impact
The impact of the trade war is not just limited to the US and China. The International Monetary Fund further reduced its world growth outlook in its July update as a consequence of the trade war. The group now forecasts world growth to slow to 3.3% by year-end, down from prior estimates and at its lowest figure since the global financial crisis.
The SPX500 gapped lower at the open but has since recovered to trade back into the green on the week. For now, price remains in the upper end of the 2815.81 – 2940.12 range which has framed price action since the breakdown beneath the bullish trend line from 2018 lows. Any topside break could once again see a challenge of the broken trend line next, ahead of all-time highs around 3023.29 while any move to the downside could put focus on a test of the 2726.47 level next.