'Escalation is here': The US has chosen a path that rapidly ramps up Trump's trade war with China

(Thomas Peter-Pool / Getty Images)
  • UBS analysts said the latest round of US tariffs against China were structured to allow for faster implementation.
  • They expect the tariffs to be implemented, which is likely to further escalate the trade war resulting in $US450 billion worth of US tariffs.
  • The scenario will harm US economic growth and boost inflation.

The Trump administration’s $US200 billion tariff announcement this morning means a significant escalation in the US-China trade dispute is now firmly in play.

That’s according to a team of American economists from UBS, who noted the new list has been structured to allow for faster implementation.

The United States Trade Representative (USTR) has announced plans for further tariffs as an additional action to the existing 301 case relating to alleged Chinese theft of US intellectual property.

That case formed the basis of the first round of US tariffs against China which were rolled out last week.

Initiating the latest tariffs as a supplemental action means they could be implemented before September, pending the results of a hearing on August 20-23.

The UBS team of economists, led by Seth Carpenter, pointed out that if the US had wanted to drag out the negotiations, it could have launched a separate process. But the method of its decision means the new round of tariffs look likely to be implemented, and most likely draw a further Chinese response.

Here’s UBS on the revised state of play:

Once the administration implements the additional $US200 billion in tariffs, the Chinese government will almost surely retaliate.

On this path, the US government would then almost surely retaliate in response, raising the stakes immediately to $450 billion in imports of Chinese goods under tariff.

As we have noted, the initial $US50 billion list was curated to minimise economic damage; the goods involved have readily substitutable alternatives.

At $US450 bilion, the list becomes comprehensive and supply-chain damage seems almost inevitable; many of the goods on the longer list are imported largely from China, making substitution essentially impossible. Such an escalation pushes the situation from a trade skirmish to a trade war.

In the economists’ view, if the latest round of tariffs do result in a tit-for-tat escalation, it will likely weigh on US GDP growth and put upward pressure on inflation.

Despite the increasingly dim outlook, they said a positive outcome was still possible.

Prior to the first round of US tariffs against China, UBS said negotiations between the two countries looked promising. However, with the latest announcement, “those paths have narrowed substantially”.

At the heart of the matter, it said both sides still need to come to an agreement over the complaint on which the 301 complaint was based, which is Chinese theft of US intellectual property.

Given the US now looks set to escalate the trade war by the end of August, the time-frame for a successful conclusion to that debate has been pushed forward.

ALSO READ: The US now plans tariffs on more than 6000 Chinese products worth $US200 billion — here’s what’s included

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