US/China trade war a ‘long way off’

By Tim Stewart
 — 1 minute read

Markets jitters continued last week as the US-China trade talks ended without a joint statement, but there is cause for hope, says AMP Capital.

Despite the apparently fruitless negotiations between the US and China last week, the current situation does not feel like 1929 – or, for that matter, 1971, says AMP Capital chief economist Shane Oliver.

Along with the apparent breakdown of talks between the two world powers, it appears likely that the US may engage in bilateral talks with Mexico and Canada, which "would effectively kill NAFTA and the G7 Finance Ministers meeting," said Mr Oliver.


That would effectively turn the G7 into a G6 versus the US regarding trade, he noted.

However, there is reason for hope, Mr Oliver said.

"First it does seem that the US and China are making incremental progress on their trade dispute," he said.

"There has been no negative comment from the US and there has been talk they may be trading objectives in terms of how much China will buy from the US.

"There is a good chance that while the US will provide the final list of Chinese imports to be subject to a 25 per cent tariff on June 15, but that implementation will be delayed," he said.

Second, the US tariffs at around 3 per cent of total imports are a "non event" compared to US tariff hikes in 1929 and 1971, Mr Oliver said.

"[The previous trade wars] covered virtually all imports and their tax revenue is trivial compared to the fiscal stimulus being pumped into the US," he said.

"So even if they are implemented and there is proportional retaliation we are a long way from a full-blown trade war."

In April, Mr Oliver dismissed the tit-for-tat tariff proposals between the two countries as a "phoney trade war".



US/China trade war a ‘long way off’
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