America's imposition of $34 billion worth of tariffs on Chinese goods has been met with retaliatory measures, guaranteeing the conflict will continue to deteriorate before a solution is negotiated, says AMP Capital.
On Friday, 6 July, Mr Trump’s 25 per cent tariffs on $34 billion worth of Chinese goods officially commenced, affecting technology and industrial goods such as engines, machinery, batteries, medical equipment, and some vehicles.
On the same day, China responded with tariffs on US goods worth roughly the same amount, affecting “agricultural products, vehicles and aquatic products,” according to the Chinese state-run press agency Xinhua.
AMP Capital chief economist Shane Oliver’s latest weekly market update said the tit-for-tat tariffs “still looks like a negotiating stance”.
“Otherwise, all the tariffs would already have started up by now,” he said.
“And Trump knows that the costs to US workers (from soybean farmers to Harley Davidson workers) and consumers will escalate as more and more tariffs are imposed and this could become a problem for him if it’s not resolved by the mid-term elections.”
Furthermore, there also “some signs” of openness to negotiation from German High Chancellor Angela Merkel by axing European tariffs on automotive imports, Mr Oliver added.
“So our base case remains that some form of negotiated solution will be reached, but things are likely to get worse before they get better.”
Australia’s share market has proven to be “quite resilient” amidst the steadily escalating trade conflict.
“But [Australia] will become vulnerable should trade wars pose a threat to global growth as that would reduce demand for our exports.”
In a separate statement, University of Adelaide’s South Australian Centre for Economic Studies executive director Michael O’Neil indicated his positive outlook on global growth.
“The most likely scenario is that global economic growth will continue quite solidly for the next couple of years, at least so long as China’s economy doesn’t slow down faster than expected.”
But the US/China trade war poses a key risk to that global growth, he noted.
“There are also risks in the international economy, including the threat of US protectionist measures escalating into trade wars and the risk that growth is choked off by the upward swing in global interest rates that is already in progress.”