Donald Trump’s threat to impose tariffs on another $200 billion of Chinese imports could cut as much as half a percentage point from the nation’s economic growth, according to economists.
The warning comes amid signs that the world’s second biggest economy—and biggest contributor to global growth— is already slowing down as a simmering trade dispute with the US risks spiraling into a protracted trade war. China’s economy grew by 6.9 percent in 2017 and the government has set a growth target of 6.5 percent for the current year.
Trump ordered identification of $200 billion in Chinese imports for additional tariffs of 10 percent—with another $200 billion after that if Beijing retaliates. He’s already promised to place tariffs of 25 percent on $50 billion, starting from July 6 with an initial $34 billion worth of imports.
UBS Group AG estimates the initial round of tariffs on $50 billion of imports could lower China’s economic growth by 0.1 percentage point in the first year. If Trump imposes tariffs on a further $100 billion of goods, the drag on growth could be 0.3 to 0.5 percentage point. Deutsche Bank AG estimates tariffs on $250 billion worth of Chinese goods would shave 0.2-0.3 percentage point off China’s GDP growth in the first twelve months after application. Bloomberg Economics’ Tom Orlik and Fielding Chen write that the impact of decreased exports and lower manufacturing investment could add up to a 0.5 percent blow to GDP.
Analysis of how the tariffs impact vary and much depends on the final details of the duties that are pushed through. It’s also the case that China’s authorities have massive monetary and fiscal power they can unleash to counter any trade-related slowdown. Officials are already pulling multiple policy levers in an attempt to steady financial markets rattled by the intensification of the trade dispute with the US and a worsening growth outlook.
Officials set the daily fixing of the yuan at a much stronger level than expected, suggesting efforts to stem a two-day slump that was the steepest since the 2015 devaluation. People’s Bank of China Governor Yi Gang pledged to use monetary policy tools “comprehensively” in support of the economy. The rising prospect of an all-out trade war complicates policy makers’ efforts to curb debt in China.
China’s direct investment in US collapses
China’s direct investment in the US slumped in the first half of this year, amid deteriorating economic relations between the two nations, according to Rhodium Group LLC.
In the first half of this year, Chinese companies completed acquisitions and greenfield investments worth $1.8 billion, representing a drop of more than 90 percent from the same period in 2017 and the lowest level in seven years, according to Thilo Hanemann, a senior policy fellow.
As the Trump administration faces off with Beijing over a trade dispute that’s partly focussed on alleged abuses of US IP, lawmakers and the White House are planning fresh curbs on Chinese investment.
A White House report claimed that China’s spectacular economic growth “has been achieved in significant part through aggressive acts, policies and practices that fall outside of global norms and rules.”