As trade tensions continue to escalate between the US and China, an analyst with Fidelity International said the new developments will only have a limited effect on the economies of both countries.
Earlier in September, US President Donald Trump announced further tariffs of 10 per cent on US$200 billion of Chinese goods, which will rise to 25 per cent in 2019 in the absence of a deal.
China retaliated with its own levies of up to 10 per cent on US$60 billion of US imports.
Ian Samson, market research analyst at Fidelity International, said these measures will only somewhat dent China’s growth prospects and provide a one-off boost to US inflation.
“We estimate the measures will lop 0.6 per cent off Chinese growth in 2019, assuming the US implements the higher 25 per cent tariff,” he said.
Mr Samson said it is not a significant cause for concern but it will add to China’s slowdown following the clamping down on the banking sector and loss of infrastructure stimulus.
“Falling infrastructure investment growth is arguably more concerning than tariffs on exports to the US, which make up less than 4 percent of the economy.
“Investment in infrastructure had grown at around 20 per cent annually between 2013 and 2017, before plummeting this year into contractionary territory,” he said.
The tariffs could exacerbate China’s current deficit, which has been running around US$35 billion annualised deficit in the first half of this year, said Mr Samson.
“A quick estimate would have this rising to US$135 billion (around 1 per cent of GDP) as a result of the new tariffs, although this could be less if China manages to redirect these ‘lost’ exports to countries other than the US,” he said.
Mr Samson said this would put pressure on the renminbi, which he did not believe is priced in, but didn’t expect any disorderly price moves.
“Overall, we expect China to continue with its relatively minor easing measures seen of late, as much for domestic reasons as for tariff concerns,” he said.
The US meanwhile could have an unpredictable response to tariffs, but it would not change the base case for where the economy would grow, said Mr Samson.
“We’ve seen estimates that the tariffs will provide a boost to US inflation of between 8 and 30 basis points. This will be a one-off, which the US Federal Reserve would almost certainly look through and not adjust its rate path in response,” he said.
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