Why the latest US tariffs on China imports carry a ‘notable risk’ to economy

U.S. one-dollar currency notes; taken September 2018.U.S. one dollar bills.

The Trump administration’s expansion of tariffs on imports from China carry the potential for greater risks to the economy, Nomura said in a note on Monday U.S. time.

“We see a notable risk that today’s announcement could lead to a material deterioration of business sentiment and the growth outlook,” it said.

U.S. President Trump escalated his trade war on China on Monday U.S. time, with plans to impose 10 percent tariffs on US$200 billion worth of imports from China and warned that if China retaliates, he will impose further tariffs on another US$267 billion in imports, effectively all of China’s goods exports to the U.S.

The tariffs will start on 24 September and will rise to 25 percent by the end of the year, Reuters reported, citing a senior administration official.

The Washington Post reported that Trump’s blustering likely means that China must also take a hard-line stance to save face. China has previously threatened to retaliate and has already retaliated for previously imposed tariffs.

Nomura pointed to the “wide range of capital and consumer goods” on the list, even with around 300 product categories given exemptions.

“The wide range of targeted products should have significant effects on supply chains and may adversely affect both consumers and business sentiment,” Nomura said. “In particular, recent University of Michigan surveys indicated that consumers have become increasingly aware of trade tensions. Note that pass through of tariffs could be larger than intermediary goods.”

It noted that after 20 percent tariffs were imposed on washing machines in February, the consumer price index for washing machines jumped by around the same amount.

“This precedent suggests the response from consumers could be more acute,” it said.

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