With the trade tension between the United States and China intensifying, Goldman Sachs sees the possibility of the US eventually imposing tariffs on all imports from China, according to a report by CNBC.
The US imposed a fresh round of tariffs worth $200 billion worth of Chinese products last week, while Beijing retaliated with tariffs on US goods worth $60 billion.
The US absorbed more than $500 billion worth of Chinese goods in 2017, while China took in US goods worth only $130 billion. This imbalance has irked the US President Donald Trump who is now looking to correct it. Hence, Goldman Sachs feels the probability of the US subjecting all Chinese goods to tariffs has risen by 60 percent.
Even if trade relations between the two largest economies of the world are going south, Trump is trying to find common ground with other trading partners like Europe, Mexico and Canada.
“On a more positive note, we have seen de-escalation on other fronts of the trade war, with a NAFTA deal likely by November and reduced trade tension with the EU,” Goldman said.
Countries produce more of and consume less of, a good in which they have a comparative advantage over their trade competitors, according to the free trade theory. This process would be at risk if the trade relations between the US and China deteriorate.
“Economic principles suggest that trade barriers will weigh on productivity in the longer term, as countries are forced to produce goods in which they have no comparative advantage,” the report said.
“The effects on inflation are clearer: The measures announced to date look set to push up US core inflation by around 0.1 pp, and about twice if the next round of China tariffs materialises,” Goldman said.
In 2017, world exports were at $18 trillion with global trade maintaining its highest growth rate in six years. This year, Goldman stated, the trade has upheld its growth despite tensions but that may not be the case next year.
It is worrying how these tariffs will trickle down and affect the customers. After a fresh round of levy was announced, China reportedly cancelled high-level talks.