Los Angeles, United States, September 12, 2018/QY Research, Inc.


The financial news website MarketWatch reported that the trade conflict between the United States and China has been in the past few months, and a wave of tariff wars has been launched, which has caused market investors to worry that the deterioration of trade relations between the world’s two major economies may hit the overall global economic situation, but Kaitou Capital Economics analysts believe that the situation may not have been as bad as expected.

Recent developments include: President Trump also threatened last Friday that China may face another round of tariff penalties, with the latest target pointing to $267 billion worth of Chinese imports. At the same time, the Chinese side is said to have sought permission from the World Trade Organization (WTO) to prepare sanctions against the United States on the grounds that the US has not complied with the WTO arbitration on US dumping duties. China has also taken retaliatory measures against the tariffs imposed by Trump.

Investors are worried that the US-China trade war will hit the hands of companies, electronics and agricultural products affected by these tariffs, as well as other countries. However, according to Andrew Kenningham, the chief global economist of Kaitou, the overall economic impact of the US-China trade war seems to be limited. He cited the following five reasons:

1. At present, the fiscal policies of the United States and China are very loose, and “as long as fiscal policy is not tightened, tariffs may not reduce aggregate demand,” because trade flows may shift to other countries in order to avoid tariffs, rather than eliminate demand.

2. The volume of global trade may not fall as well. The demand for most of China’s exports is very low, and many of the US exports to China can be turned elsewhere; a large part of the US’s import tariff sanctions against China has been offset by the depreciation of the yuan against the US dollar.

3. For China and the United States, exports account for a small proportion of gross domestic product (GDP). Both countries rely on trade, but exports account for only about 20% of China’s GDP last year, down from 36% in 2006; the US’s exports accounted for only 12% of GDP last year.

4. The US-China bilateral trade has a lower contribution rate to GDP. For China, trade with the US only contributes about 2.5% of GDP, and for the United States it is minus 1%. Kenny Han estimates that assuming a 20% reduction in US-China trade (which is larger than Kay’s macro estimate), the impact on China-US GDP will be 0.5% and 0.2%, respectively, and does not constitute a reason for panic.

5. The impact of inflation in the United States or China should not be significant. The consumer price index is an indicator that the central banks of the two countries attach importance to, and the degree of US and Chinese monetary policy is limited by the trade war.

In short, Kenny Han said: “If the trade conflicts in the world’s two major economies have little impact on the global economy, it seems counterintuitive at first glance; however, China and the United States, despite a total share of 22% of world exports, The bilateral trade only accounts for 3.2% of the district.” He believes that only when protectionism spreads far beyond the US-China trade relationship will it significantly impact global GDP growth.


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