HomeContributorsFundamental AnalysisUS-China Trade: New Trade Escalation Turns Focus to Xi-Trump Meeting

US-China Trade: New Trade Escalation Turns Focus to Xi-Trump Meeting

On Friday, Trump threatened China with 100% tariffs on top of the existing rates as a retaliation against China’s new export control measures on rare earth minerals. However, comments received over the weekend appear to downplay the risk of trade war escalation.

Focus now turns to a Xi-Trump meeting at the end of the month, where the two sides can dial back the escalation. We see a more than 50% chance for this.

While the 100% tariff hike would push the pre-substitution US average tariff rate to around 28%, or close to the highs seen last May, the effective increase would be more modest due to re-routing of trade.

Both importers and exporters have adapted to the new tariff landscape which alleviates downside risks to both US and Chinese economies even if the higher tariffs go into effect. We expect the Fed to cut rates by 25bp later this month irrespective of the near-term trade war outcome.

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Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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