US-China Trade: Avoiding the Costs of Escalation

While prospects for a near-term rapproachement in US-China trade discussions have increased, the probability of a grand bargain that would reduce bilateral tariff levels meaningfully remains extremely low. This note describes how new and threatened rounds of bilateral tariff escalation on September 1 and December 15 will weigh on trade flows on an industry-by-industry basis, utilizing detailed tariff subheading data and a lesser-known China Customs database.

To date, the fall in China’s exports to the US has been concentrated in machinery and electrical equipment, which is mirrored by weak industrial production volumes. Combined, the September 1 and December 15 US tariffs cover half of China’s exports to the US in machinery and electrical components and other miscellaneous manufacturing, and nearly 100% of China’s exports of textiles, apparel, footwear, and precious metals.

As China’s retaliation cannot match US escalation, two-thirds of China’s imports from the US subject to September and December tariffs are already subject to earlier retaliation. Imports from the US subject to tariffs for the first time in September include mineral products, while retaliatory tariffs scheduled for December will hit US plastics, rubber, precision instruments, and transportation equipment exports to China.

Posted October 2, 2019
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Update: Trade War Chartbook

We updated our chartbook with results of the computable general equilibrium model of the impact of US-China tariffs, to account for the announced September 1 escalation of 10% tariffs on the remainder of US imports from China. The effects are marginal compared to tariffs already in force, but suggest weaker investment in the US and China, a larger US trade deficit, a rising China trade surplus, and a more severe impact on the US economy than China’s.

Posted August 7, 2019
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Q2 2019 China Macro Data Recap

China’s real GDP growth slowed to 6.2% y/y in Q2 as trade activity weakened and producer prices flirted with deflation, while June credit, industrial output, and retail sales data showed modest improvements. Property construction continues to support cyclical economic momentum, but the stronger data points seen in June were largely attributable to one-off factors, and should not be interpreted as fruits of policy support. Headwinds to continued cyclical activity growth in the second half of 2019 include both the US-China trade dispute and a probable slowdown in corporate credit growth following the Baoshang Bank takeover.

Posted July 16, 2019
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