China's economy, much more vulnerable to exports, is likely to take a bigger hit than the U.S. from the escalating trade war.
The U.S. slapped tariffs of 10 percent on $200 billion in Chinese goods, and China retaliated by putting tariffs on $60 billion in U.S. goods. Economists expect Chinese growth to take a hit of 0.5 to 0.6 percentage points in 2019 if tariffs are raised to 25 percent on Jan. 1 as the U.S. has announced.
"If you put tariffs across the board on both countries...it's a four times bigger hit to China because they export four times as much as they import," said Ethan Harris, head of global economics at Bank of America Merrill Lynch.
"The tariffs announced so far could have as much as a half percent impact on Chinese growth...In the U.S. we've got even less because first of all the shock is much smaller, and the momentum is so strong in the economy, it gets lost in the numbers," he said.
BofA now expects Chinese growth in 2019 of 6.1 percent, even with the offsetting positive from China's stimulus programs. JP Morgan expects China's growth to slow by 0.6 percentage points because of the weakening of both export and import activity.
The current tariffs are likely to affect U.S. growth modestly, by 0.1 or 0.2 percentage points, but if the 10 percent tariffs on $200 billion on Chinese goods are raised to 25 percent, and China retaliates, the hit could be 0.2 or 0.3 percentage points in 2019, Harris said. BofA expects 2019 U.S. GDP to grow by 2.7 percent.
Harris said the trade war may not end until U.S. consumers feel the effects, or people become concerned that it will be prolonged and continually escalating.
Reference: CNBC
Read More: https://www.cnbc.com/
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