Trade War Marches On

The United States and President Trump continue to march on the path of increased tariffs targeting China as well as other countries.  We are on course to deploy up to 25% in tariffs on nearly $500b in Chinese manufactured goods.  With action dates quickly approaching, all ears are dialed in for news, developments and updates.

This week, China’s Ministry of Commerce sent a delegation lead by Vice Minister of Commerce Wang Shouwen.  This delegation will meet with US Trade Representatives office for ‘mid-level’ talks.  What will be missing?  Anyone authorized to make real changes or commitments to the proposed tariffs.  However, the visit still boasts a positive aspect on the overall discussion that has gone silent for more than two months.

China is feeling the effects of the increased tariffs already.  Perhaps the biggest impact, a dip in China’s currency valuation by 9% since April when tariff discussions began.  In addition, China’s economy has seen slower investment growth and a drop in consumer spending.  This is a substantial domestic threat to President Xi who depends on healthy growth as a key to maintaining power.  Turkey has suffered far worse thus far and the situation there has become quite serious.

Looking at a broader picture, if all proposed tariffs were enacted, the estimated impact to China’s economy is thought to be between 0.1% and 0.3%, while their overall growth is moving along at approximately 6.7%.  The outlook for the United States is far more significant.  Maersk’s CEO said last Friday that the impact on U.S. growth could be as high as 3-4%, a significant blow.

The jury is still out on whether the delegation will make any progress.  Trump has been relatively quiet on the matter in recent weeks, but those around him admit no one knows at this point what he truly wants from all of this..  Reports indicate that China has enlisted the support of several leading college institutions within China to more thoroughly evaluate overall impact of the tariffs.  The results of their findings will certainly impact what, if any, consideration they may offer to reach a resolution on the matter.