Goldman: US-China Trade War Set To Worsen

Echoing the comments laid out last night by Standard Chartered's Steven Englander, this morning Goldman Sachs doubled down on how the US-China trade war will progress in the near-future, warning that it expects the tensions to get worse, at least initially. Speaking to Bloomberg TV, Goldman's co-head of EM and FX research, Kamakshya Trivedi, said that "we think that trade tensions will probably worsen before they get better."

Trivedi also predicted that "we’ll see probably see more weakness in the renminbi” over the next three to six months, a prediction that certainly has proven accurate today, with the onshore Yuan sliding to the lowest level since August 2011.

"There’ll be more stability after that, thanks in part to China’s growth holding up ok", according to the analyst who doesn't think that Beijing will "treat the currency as a weapon, but some of the weakness so far won’t be unwelcome to Chinese policy makers."

In a separate note, overnight Goldman economist Alec Phillips writes that the release of the list of $200BN in tariffs on Chinese imports "raises the probability that further tariffs will be implemented" adding that Goldman was somewhat taken aback by the timing of the announcement: "

"We had expected that the next round of tariffs on $16bn in goods could be implemented by late August or early September, so the implementation of this next round of $200bn, if it happens, looks unlikely to occur until September at the earliest."

Phillips also writes that networking equipment, computer components, and furniture would be the most heavily impacted imports in the newest round of tariffs. He adds that the list avoids consumer goods, including apparel more than Goldman had expected, while share of computer components, furniture affected is larger than anticipated.

The Goldman analyst also observes that "some imports that are supplied almost entirely by Chinese manufacturers were excluded from the list, including cell phones and toys." He also notes that while targeting divertible imports may be politically desirable, this goal will become increasingly difficult to achieve as the scale of trade restrictions grows.

Indeed, the Chinese share of US imports on today’s list is 51%, compared to 20% for the $34bn in goods subject to tariff as of July 6.

Finally, here is the breakdown of the largest categories affected by the tariffs which include: network routers ($23bn in imports in 2017), computer components ($20bn), and furniture ($29bn).

Across all categories, the breakdown of the tariff list as follows:

  • Agricultural goods ($3bn),
  • processed foods ($3bn),
  • chemicals ($10bn),
  • plastics ($10bn),
  • leather and leather goods ($7bn),
  • wood and wood products ($3bn),
  • paper ($3bn),
  • textiles ($4bn),
  • stone ($5bn),
  • base metals ($16bn),
  • other electric equipment and appliances including refrigerators, air conditioners, and vacuum cleaners ($26bn), and parts for autos, trucks, and agricultural equipment ($12bn).

The question, as noted last night, remains just how China will respond as it can not retaliate proportionately as the US does not exports $200BN in products to China, which means that as the WSJ reported earlier, Beijing may pursue more qualitative responses such as holding up licenses for U.S. firms, delaying approval of mergers and acquisitions involving U.S. companies and ramping up inspections of American products at borders.

A formal response is yet to come, at which point Trump will likely retaliate once again as any more by China will be seen by the Trump administration as a brand new escalation in the tit-for-tat progression of this trade war.


inosent Four Star Wed, 07/11/2018 - 12:02 Permalink

War? Hardly. More like a reasonable and sensible effort to balance trade so there is true mutuality instead of one side grossly taking advantage of the other. Objectively, the most reasonable trade relationship is break even - $0 surplus $0 deficit. Saving that, a trade balance that oscillates around break even some years above, others below, but always hovering close to the $0 line on the graph.

This $1T deficit is total bulls- and everybody knows it.


In reply to by Four Star

Antifaschistische DingleBarryObummer Wed, 07/11/2018 - 10:14 Permalink

I actually think this "war" will be good for the Chinese.  Sure, not at first...but they've already run their course on draining the US of any remnants of wealth.  They need to focus on their markets where they cater to their own citizens.  It's ironic that at the same time the US just can't get enough of Chinese cheap goods...the Chinese people do not like Chinese products and they don't trust Chinese businessmen.   If they start to focus on selling products to their neighbor rather than to some 'purchasing agent' in the US that always accepts the 'low bidder', they may start to improve the quality of their products, and their own personal integrity.

In reply to by DingleBarryObummer

Tachyon5321 Wed, 07/11/2018 - 09:57 Permalink

Trump knows the Chinese economy is very weak and a major hit like this will do longterm damage.  Many of the Chinese company's are already bankrupt and this will finish them when their margins are called..


Xi is not actually that smart.  He could have prevented this by buying LNG gas from the USA. But no, he has to be a dumb @ss.


hooligan2009 Wed, 07/11/2018 - 10:23 Permalink

the obvious answer to the unfair trade practices of both the EU and China is not tariffs. it is..


not a problem in the days of blockchain - well unless the US has spent all its money on welfare payments to the "gimmedats" and doesn't have the technology within the ports systems.

Griffin Wed, 07/11/2018 - 10:27 Permalink

It is very important for China to have a strong consumer market in the USA to sell products and service to.

If the US keeps running huge deficits in every direction and amassing record amounts of debt, as per Obama/Krugman halfwit policy, eventually something will give.

When it does, China and others who rely on the US in this way will take a big hit. 

Its fairly obvious to long term thinkers, old and wise like the Chinese, that the gravy trains always eventually crash into something or go of the tracks, but of course this gravy is so damn finger-licking good.

Youri Carma Wed, 07/11/2018 - 12:27 Permalink

China's trade war retaliation efforts are focusing in on on U.S. oil exports to China.

An other 'boiling frog' in the background is the circumventing of the dollar in trade and the dumping of U.S. treasuries.

DemandSider Rockwell Thu, 07/12/2018 - 07:54 Permalink

They already are rich. They have the 2nd largest trade surplus in the world, and their middle class is growing, not shrinking, like ours. They already own IBM PC; Volvo;  Morgan Stanley; Pirelli Tire; MG; Hummer; Nexteer Automotive (former GM subsidiary), Farmland, Smithfield, AMC Theaters; Carmike Theaters; Odeon Theaters; Legendary Entertainment, Forbes, Motorola, etc., hotels, real estate, etc...

In reply to by Rockwell