U.S.- China trade talks: Escalation

3 min
Mahamoud Islam
Mahamoud Islam Senior Economist for Asia

On 5 May, President Trump announced plans to raise tariffs, arguing that current U.S.-China talks are too slow. From 10 May, tariffs on USD200bn of imports from China would increase to 25% (from 10% currently). Remaining untaxed U.S. imports from China would face duties shortly. This move comes as (i) China and U.S. officials are expected to meet in the U.S. to discuss a trade deal and (ii) trade data continue to show signs of weakness. For instance, March trade figures were disappointing for a lot of major export-driven economies (e.g., South Korea, Japan, Singapore, Hong Kong) and early releases for April (South Korea, USD-denominated exports down -2% y/y) are not encouraging. On top of tariffs, uncertainty is acting as a drag on trade as corporates delay investment and new orders. Escalating tensions add further complication. We estimate that if the U.S. implemented the announced tariff hike to 25% from 10% on USD200bn of imports from China, the average U.S. tariff would rise above 6%. And this could cost -0.5pp of global GDP growth and -2pp of global trade growth over the next two years.