Tariffs Will Cut China Growth by One Point, Citi Says

(Bloomberg) -- An increase of tariffs on $200 billion of Chinese goods would cut 0.5 percentage points off China’s growth over one to two years, and the impact could more than double if duties are slapped on all its shipments to the U.S.

That’s according to Citigroup Global Markets Inc economist Cesar Rojas, who also wrote in a May 8 note that raising tariffs on $200 billion of China’s goods to 25 percent from 10 percent on Friday would slice 0.2 percentage points off global growth over the same period. The impact on global expansion also would also double if duties of 25 percent are slapped on the remaining Chinese imports, he said.

“The larger share of the cost is likely to be borne by China and spillovers to the rest of the world,” Rojas said. “As the uncertainty effect from the additional tariffs starts weighing on the Chinese economy, we would expect China to look for resuming trade talks before the tariffs are actually implemented.”

An escalation of tensions will have spillover effects on the rest of the world through supply chains, higher uncertainty, the impact on business sentiment and investment, and a potential tightening of financial conditions, Rojas said. Taiwan, Thailand, Malaysia and Korea are vulnerable. Mexico, Canada, Vietnam, Malaysia and Thailand could benefit from U.S. trade diverted from China, he said.

An increase of tariffs will add 0.3 percentage points to U.S. core inflation while 25% tariffs on the remaining Chinese shipments, which cover 60 percent of consumer goods imported from China, may add 0.24 percentage points to the core Personal Consumption Expenditure Price Index over a year, he said.

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