China and U.S.: Trade war – a glimmer of hope?

3 min
Mahamoud Islam
Mahamoud Islam Senior Economist for Asia

Last week, President Trump hinted at a trade deal with China. He said that there has been some pro­gress in resolving trade tensions between the two nations and China was ready to make concessions. Then, he reportedly asked officials to draft the terms of a potential trade deal ahead of the next G20 summit in Buenos Aires later this month. In China, the tone was not as positive. In his keynote speech at the Shanghai Trade Fair, President Xi did not mention any concessions that China could make to respond to President Trump’s demand; he indirectly criticized the current U.S. trade policy while casting China as a globalization champion. Looking ahead, we believe that it is too early to foresee a trade deal by the end of this month but progress and more detail on a bilateral agreement could be announced at the G20 summit. This could imply for now: a pause in tariff escalation with no increase of tariffs to 25% for USD200bn of imports from China (currently at 10%); no further tariffs on the remaining imports from China. The average U.S. tariff rate would remain below 6%, a level not too disruptive for global trade growth. The latter would slow but remain resilient at +3.6% in 2019 (after +3.8% in 2018).