Trade War Skirmishes

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The latest salvo in the global trade war saw Chinese tariffs taking hold on $60 billion of U.S. exports, which followed the imposition of U.S. tariffs on $200 billion of Chinese exports.

Probably the most important new developments are Secretary of State Pompeo saying, “[W]e are going to get an outcome which forces China to behave in a way that if you want to be a power…you don’t steal intellectual property,” and a Chinese white paper asserting, “The door for trade talks is always open but negotiations must be held in an environment of mutual respect…and not under the threat of tariffs.” Not much wiggle room from either side, though for now both countries have imposed lower levies than originally threatened, i.e., the United States 10% vs. 25% and China 5‒10% vs. 25%. China clearly is still a strong story: consider that exports have picked up pace, after having doubled in almost 10 years and quadrupled over 15 years.

It is important to understand that China has been forthcoming during this dispute. According to a June 2018 International Monetary Fund report, “the Chinese authorities said they would respond to the U.S. tariffs with comprehensive measures, but they also announced new opening-up plans. These include lowering entry barriers on financial services and autos, reducing import tariffs for a wide range of consumer goods and autos, loosening sectoral restrictions on foreign investment through a shortened negative list, and seeking faster progress toward joining the WTO Government Procurement Agreement. The direct macroeconomic impact of tariffs announced to date appears limited, but could be amplified significantly through financial and investment channels, and further rounds of retaliation, raising downside risks.” It will be an interesting few months.

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