If the current tariff-for-tariff tradeoff between the United States and China resembles a mere scuffle, multinational investment bank J.P. Morgan expects it to escalate into a full-blown trade war. Just recently, the firm lowered its ratings for Chinese stocks from neutral to overweight, citing that the trade wars will heighten to a point where its economy is substantially impacted.
Last month, U.S. President Donald Trump announced his administration was moving forward with imposing a 10% tariff on $200 billion worth of Chinese goods that includes a step-up increase to 25% by the end of the year. The administration moved forward with the tariffs despite both economic superpowers in the midst of scheduled trade talks to ease tariff tensions.
In less than 24 hours, China responded with $60 billion worth of tariffs on U.S. goods, which began on Sept. 24. The new round of tariffs from China are said to affect a list of 5,207 products within a range of 5 to 10% as both the U.S. and China have already slapped each other with tariffs worth $50 billion total.
The IMF estimates that the ongoing effects of trade wars could cause global output to slide by more than 0.8% in 2020 and come under 0.4% below its trend line in the long term view. Furthermore, IMF predicts that China’s output could fall by more than 1.6% and over 0.9% in the U.S. in 2019.
“IMF’s downgrade just goes to show how the tariff dispute between U.S. and China is beginning to take its toll on the global economy,” said Cardillo.
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