Early this week, President Trump imposed 10% tariffs on USD200bn of Chinese imports (effective from September 24th) set to rise to 25% by the year-end if no deal is reached. As a consequence, the US average import tariff would increase from 5.2%, equivalent to levels seen in the ‘80s, to 6.7% by year end. As a reminder it stood at 3.5% in the beginning of this year. China has announced retaliatory measures on USD60bn imports from the US in addition to the previous USD50bn previously implemented. Overall, global trade growth is expected to slow to +3.8% in 2018 and +3.6% in 2019 (after +4.8% in 2017). Yet, further US tariffs put global trade growth on a dangerous path. We are now close to a Trade Feud scenario (40% probability) which would cut global growth by -2pp in the two coming years. China could lose -0.3pp of GDP growth. The US administration announced that it could go further with tariffs on USD267bn of additional imports, which would mean that all imports from China are taxed higher. This would translate into around 9% US average import tariff. In this environment, we would be closer to the Trade War scenario (5% probability) in which global trade growth could be cut by -6pp, China’s economic growth would be cut by -1pp.
