Some of Wall Street’s biggest banks have run the numbers on how Donald Trump’s latest trade salvo will hit economic growth in the U.S. and China. Here’s a summary of their takes:
If Donald Trump goes ahead with tariffs on $250 billion worth of imported Chinese goods, the hit to U.S. growth would be around 0.3 to 0.4 percentage point and for China it could mean a drag of 0.3 percentage point, according to Morgan Stanley. There’s also the risk of an indirect hit to China arising from supply chain complexities which could subtract another 0.3 percentage point from growth.
“The potential imposition of further tariffs on imports from China reaffirms our view that trade tensions will likely linger for longer,” Morgan Stanley economists led by Chetan Ahya wrote in a note. “While we still see negotiations as the endgame, getting there will take longer, leading to increased risks to business confidence and capex.”
Deutsche Bank described Trump’s latest threat as a “significant escalation” and if it was fully implemented, likely to mean a hit to China’s real economy of 0.3 percent of GDP, most likely in 2019.
“The impact will likely start to show up in China’s exports in Q4, but we expect the bulk of the impact to take place in 2019, given the consultation process,” Deutsche economists led by Zhiwei Zhang wrote in a note. “We maintain our GDP forecast of 6.6 percent in 2018 and 6.3 percent in 2019.”
J.P Morgan reckons China’s economy could take a hit sooner than expected, though it remains manageable. “Should the additional tariff take effect, it would increase tariffs on Chinese imports on average by 6.5 percentage points, which would reduce China’s exports to the U.S. by 8.6 percent and drag on GDP growth by 0.2 percent via the trade channel.”
They also caution that the indirect impact could be through the labor market and consumption, or via weaker business confidence.
“Despite rising conflict, we believe both sides are still willing to negotiate,” economists led by Haibin Zhu wrote in a note. They warned it will be difficult to contain spillover effects if the dispute worsens from here, risking “a much bigger disruption to global production and trade activity, affecting investment incentives and dragging on global economic growth.”
