New US tariffs on China 'ill-timed', Oxford Economics says
The incipient trade war between the US and China will lead to only a slight reduction in growth in those two countries over the short-term, but may carry with them much broader economic consequences, including sowing the seeds for a global slowdown, according to a top consultancy in the City.
At the end of the week, the US administration sauid it would proceed with 25% tariffs on $50bn-worth of Chinese imports, split in two tranches, the first of which, on $36bn of goods would kick-in on 6 July.
Combined with the impact of Beijing's retaliatory measures, that would shave-off between just one and two tenths of a percentage point from the two countries' rate of growth, but additional planned levies on another $100bn-worth of Chinese goods and China's likely response could raise the cost to between 0.3% and 0.4% for each economy over the next two years, Oxford Economics said in a research note sent to clients.
"The escalation of trade tensions between Beijing and Washington, and investment restrictions being considered by Treasury could have much broader economic consequences and sow the seeds of a global slowdown," said Gregroy Daco, Head of US Economics at Oxford Economics.
As has been highlighted by many recent surveys, including those of the ISM and various gauges of business confidence, US companies were becoming increasingly worried about the potential impact that those tariffs might have on their supply chains and production costs.
To take note of as well, some sectors might be hurt more then others, with China targeting politically sensitive ones for the US administration, such as agriculture, autos and aircraft, with the aim of hitting Trump's voter bases, Daco said.
America on the other hand had aimed its tariffs at non-direct consumer products, which makes up the largest share of US imports from China, to minimise the risk of directly passing on the burden of the tariffs to consumers, especially when inflationary pressures were already very present in the US.
In partcicular, Washington had focused on sectors included in China's flagship made in China 2025 industrial policy, such as: robotics, aerospace, information, machinery and autos.
"Further, planned restrictions on Chinese investment as currently being pursued by the Treasury's Committee on Foreign Investment could lead to a significant cooling of activity and confidence in the tech sector," Daco added.
"The escalation of trade tensions could prove to have dire consequences on both economies."