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US/China engaged in a 'phoney' trade war

US/China engaged in a 'phoney' trade war

Jessica Yun
— 1 minute read

The tit-for-tat tariff proposals between China and the US are too trivial to be called a 'trade war', says AMP Capital.

AMP Capital chief economist Shane Oliver has dispelled fears about the seemingly escalating trade dispute between the US and China.

Much of it has been hyperbole, but financial markets have had to price in the risks of a full-blown trade war zapping global growth,” Mr Oliver said in a note to investors.

He pointed out that the imposition of tariffs alone did not amount to a trade war.

“To be a ‘trade war’ the barriers need to be significant in terms of their size and the proportion of imports covered.

“Tariffs on a few goods don’t really count as a trade war because it’s not significant,” he said.

Despite China’s retaliation with its own tariffs, many of the tariff ‘plans’ or ‘proposals’ announced by either country were just that, Mr Oliver pointed out.

“So far what we have really seen is not a trade war but a phoney trade war between the US and China. The tit-for-tat tariffs triggered in relation to US steel and aluminium imports are trivial in size.

“All the other tariffs are just proposals, contingent on the US and China being unsuccessful in reaching a negotiated solution.

“Our view is that a negotiated solution will head off their implementation, indefinitely delay them contingent on trade success or result in very watered-down tariffs.”

But a fully-fledged trade war would not be in President Trump’s interests, according to the chief economist.

“It would mean higher prices at Walmart and hits to US agricultural exports both of which will hurt his base and a much lower US share market which he has regarded as a barometer of his success.”

Mr Oliver added that the reason markets had responded to the trade dispute was in order to “make some allowance for the probability” of a “full-blown trade war”.

“If a trade war is averted, even though we may not have trade peace, share markets will be able to unwind this, albeit volatility will still remain high given other issues such as [the] Fed tightening and ongoing risks around President Trump,” he concluded.

 

US/China engaged in a 'phoney' trade war
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