President Trump’s threats aside, the White House will likely steer clear of an economically damaging trade war with China, says Swiss lender UBS.
The administration’s imposition of 25 percent tariffs on $34 billion of Chinese imports Friday was expected, and even if the duties are applied to an additional $16 billion in goods in the next few weeks, the $50 billion total remains small in the context of the $32.5 trillion combined value of the U.S. and Chinese economies, said UBS economist Seth Carpenter.
[China: US is ‘firing at the whole world’ with tariffs]
While Trump has threatened 10 percent levies on at least $400 billion more in imports, the White House hasn’t yet announced the investigation that would be legally required to move forward, Carpenter said. That suggests Trump isn’t yet ready to ramp the dispute up further.
“The current trade dispute is akin to a border skirmish, not all-out war; the scale of the economic damage is vastly different between the two,” Carpenter said in a report for clients on Friday. “At $50 billion, the list was curated to minimize economic damage; at $250 billion or $450 billion, the list becomes comprehensive and supply-chain damage seems almost inevitable.”
UBS’s assessment jibes with the view of other economists that the array of tariffs the U.S. has imposed so far on China as well as America’s traditional allies are small enough not to cause significant economic damage. Still, the White House risks inflaming tensions with its rhetoric and sparking escalation that could undermine the benefits of last year’s tax cuts and push the world into a recession.
Still, major U.S. stock indexes shrugged off the China tariffs on Friday, posting gains that continued at the start of New York trading on Monday. The blue-chip Dow Jones Industrial Average rose almost 1 percent, while the broader S&P 500 added 0.5 percent and the tech-heavy Nasdaq rose 0.3 percent.
Exports to China, meanwhile, grew 7.6 percent in May to nearly $11 billion, and imports climbed 4.8 percent to almost $44 billion, according to the U.S. Census Bureau. U.S. payrolls added 213,000 jobs in June, beating expectations and signaling continued growth amid the worsening tension.
[Opinion: Trade war: Don’t bet on a China boycott defeating Trump]
