Tariff escalation risk far from over warns Morgan Stanley

Tariff escalation risk far from over warns Morgan Stanley

According to Morgan Stanley, the partial trade deal with China announced by President Trump late last week is an uncertain arrangement that does not seem to a viable path for reduction of existing tariffs. During the announcement US had agreed to suspend the proposed increase in tariff on Chinese products worth $250 million from 25 percent to 30 percent. But a previous tariff hike that was introduced in September has not been rolled back and plan for another hike before the oncoming holiday season on 15th December also remains in place. As a long term dispute settlement mechanism is not in place as yet experts are not ruling out another round of tariff increase if discussions do not work out. In a note Morgan Stanley stated that as yet there is no viable path for declining existing tariffs so their escalation still remains a risk.

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So they do not expect a turnaround in corporate behavior that can drive up expectations of global growth.  As of now President Trump has stated that the first phase of trade deal will be finalized for signature within three weeks and as per its terms China has agreed to purchase American agricultural products worth $40 – $50 billion. According to the note the first phase of trade deal between US and China is still unclear therefore global corporations are not able to make tactical decisions about investment, production and sourcing. The bank note emphasized that if US maintains the stance of “stop China’s rise” the trade war will continue. As long as tariffs remain the US – China relations are still considered bad. Goldman Sachs has a more positive viewpoint and sees 60 percent chance that 15 percent tariffs announced earlier will take effect but expects a delay until 2020 for them to take effect. JP Morgan stated that announcement of the deal’s first phase is a positive development.

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