Extended tariffs may push a US-China deal beyond 2020

Subject

US-China trade policy ahead.

Significance

Starting on August 1, the United States and China have this month imposed more import tariffs on each other’s products following the collapse of the Shanghai round of US-China trade talks. The quick reaction by both indicates that neither sees much prospect of reaching a deal. To protect domestic activity and maintain momentum for further talks, both could apply a lower tariff to products they cannot buy from elsewhere. For example, rare earths, which the United States depends on China for, remain exempt from tariffs.

Impacts

• Worries about the overreliance on consumer spending and uncertainty over investment ahead suggest that the US downturn could accelerate.
• Despite suffering slower growth and employment worries, China will not simply agree a deal on the US administration’s terms.
• Chinese negotiators understand the US-China trade dynamics better than the US administration and will use this to their advantage.
• The US administration can impose 25% tariffs on its global imports of cars and parts, citing national security; this would hit the EU hard.