Re-Assessment of Tariff Damage and the Spillovers to Expect.
As a result the US average tariff is now 31% - not 26% as i initially calcualted. That is the equivalent of a tax of just under USD 1 trillion on the US economy or 3.5% of GDP before substitution of non-tariffed products for tariffed Chinese ones and before any effects of devaluation of the RMB Vs USD.
It is a level of tariffs where the international trade flows between China and the US may freeze up with lots of unintended consequences from disruption of supply chains (e.g shipping and trucking), shortages of products, to bankruptcies and job lossed in the US. As roughly 50% of US imports of Chinese goods are inputs to US corporations the tariffs will put pressure on their margins or cause them to hike prices. Hence the immediate inflationary impact.
All that comes before the longer term effects of uncertainty and structural hits to the consumer and to investment as well as fiscal damage.
The cost to China is of course great too: probably a 2% reduction in growth in 2025 to something like 2% for this year. However China is unlikely to kowtow to President Trump. And as i expained yesterday in "The Gentleman is for turning", China is unlikely to make it easier for the US by devaluing the RMB.
A tenet of QS's geo-economic theory of the simultaneous break down of global alliances and the globalised economic system, is that conflicts can no longer be siloed and separated into "trade", "diplomacy" "military alliances" and so on. The silos are now umbilically linked and escalation in one leads to escalation in another.
Because of this it is wroth considering other escalaltion points on the horizon:
1. Iranian Oil: China increased its Iranian oil imports by at least 80 percent in March compared to the previous month. In March Iran shipped between 1.3 to 1.8 million barrels per day to China. Most of these exports are transferred off the coast of Malaysia and Singapore and reflagged as Malaysian. China remains the largest importer of Iranian oil, buying 90 percent of Iran's total oil exports. China's Iranian oil imports are helping Iran circumvent US sanctions. Iran, China, and Russia have issued a joint statement in mid-March condemning the US "maximum pressure" strategy vis-a-vis Iran. Chinese officials have echoed this statement since. (Source ISW)
2. Global Shipping: The US is looking to break what it sees as China' stranglehold on global shipping. China does dominate global ship building. 81% of the world's container vessels and 75% of bulk carriers were built in China. China owns 92 active ports across the world. Among them are 36 of the world's top container ports.
The US is examining the possibility of imposing a port charge on all chinese ships calling at US ports. The idea is to boost US shgipping which has sunk to almost derisory levels. The matter is under consideration but coming on top of the Panama/Hutchinson affair, there is scope for more US -China confrontation.
It seems to me that there are more escalation points out there than causes for de-escalation. Unless of course, the economic and financial news gets so bad that it is the Emperor Trump who kowtows to President Xi. We know from yesterday that "The Gentleman is for Turning". But I can tell from being there that the mood in China is proud and unsubmissive,
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