Trade tensions between the US and China continue to escalate as a fresh round of tariffs on $112 billion of Chinese goods came into effect on September 1, 2019.
The duties apply to products such as shoes, clothes, nappies and food, impacting US consumers more directly. The latest levy is part of US President Donald Trump’s to impose 15% tariffs on $300 billion of Chinese products by the end of the year. A further $160 billion of Chinese products, ranging from laptops to mobile phones, will come into effect on December 15.
Meanwhile Beijing is targeting $75 billion of US goods.
Beijing imposed a 5% duty on US crude oil as of September 1 – the first time that fuel has been targeted. It also applied an extra 10% to US meats including pork, chicken and beef and tariffs on US soybeans now stands at 33%.
“Tension is inching towards a full-scale trade war,” Chi Lo, a senior economist for Greater China at BNP Paribas Asset Management told Funds Global Asia. “This is negative for risk assets. It is unclear what may make the two sides stop the escalation.
“Trump appears to believe that it is politically popular to be tough on China and that he could push the US Federal Reserve to ease monetary policy to offset the trade war effects, said Lo. “China is prepared to engage in a prolonged fight even at the cost of more pains to the domestic economy. If the tension escalates further, Beijing will retaliate against the US with non-tariff barriers. But in my view, fighting the trade war by boosting domestic demand will remain the primary policy,” he added.
Could Asian markets be a beneficiary of the trade war between the US and China?
“The conflict will damage overall growth at the global level and lead to a deterioration in the trade-off between inflation and output in many countries,” said Colin Harte, a strategist for multi-asset quant solutions at BNP Paribas Asset Management.
While the trade tensions will be damaging at a global level, winners and losers will emerge. “Japan and Europe will seek to strengthen their strategic relationship and Japanese technology companies will seek a stronger relationship with US companies as politically acceptable alternatives to Chinese companies,” added Harte.
©2019 funds global asia