An escalation of the US-China trade war would drive manufacturing away from both countries and likely cause job losses, but would not change their total trade balances, an International Monetary Fund (IMF) report showed on Wednesday.
The United States and China would see “sizable” losses in manufacturing as capacity moves toward Mexico, Canada, and East Asia if tariffs were hiked to 25 percent on all goods flowing between the two countries, the IMF said in its April World Economic Outlook.
That would escalate a tit-for-tat tariff battle between the two economic giants that has gripped global financial markets since mid-2018.
The United States already has tariffs of 25 percent on $50 billion worth of Chinese goods and levies of 10 percent on another $200 billion. China has retaliated with duties on US products, including key agricultural crops.
The countries have been trying to negotiate a deal to end the spat. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are due to resume talks with Chinese vice premier, Liu He, on Wednesday, just days after the two sides reported progress in talks last week in Beijing.
The electronics and other manufacturing sectors in China would be hard-hit and the US agricultural sector would see a significant contraction if the trade war were to escalate, the IMF report showed.
The group forecast a scenario where “large sectors in both countries shed a significant number of jobs.”
That would translate to about 1 percent of the workforce in the US agricultural and transportation equipment sectors, and 5 percent in Chinese manufacturing other than electronics, like furniture and jewelry.
Growth in both economies would lose steam. On Tuesday, IMF Managing Director Christine Lagarde said US gross domestic product would fall by up to 0,6 percent and China’s would fall by up to 1,5 percent.
Any attempts to address a trade deficit or surplus with another country through tariffs would shift the trade balances with other countries, making no impact on a country’s aggregate balance, the IMF said.
For example, US imports of electronics and machinery from China would drop to 11,5 percent after the tariffs from about 22,1 percent of total imports, while the proportion of imports from other countries would rise.
The share of imports from East Asian nations would climb to 17,7 percent from 15,6 percent, Mexico’s share would rise to 14,6 percent from 12,6 percent, and Canada’s would increase to 12,3 percent from 10.8 percent, according to the report.
Even though some countries would benefit from the new trade flows, most countries are “likely to be worse off” because of increasing macroeconomic uncertainty, the IMF said.
Trump has previously threatened to impose punitive tariffs on all imports from China, more than a half-trillion dollars worth of products.
US Trade Representative Robert Lighthizer, who is leading the talks for the Trump administration, said there were still some “major, major issues” to resolve and praised Liu’s commitment to reform in China.
Asked about the remaining sticking points, Trump mentioned tariffs and intellectual property theft. He said he would discuss tariffs with Liu in their meeting.
“Some of the toughest things have been agreed to,” Trump said. He later said that an enforcement plan for a deal remained a sticking point as well.
“We have to make sure there’s enforcement. I think we’ll get that done. We’ve discussed it at length,” he said.
Lighthizer and Treasury Secretary Steven Mnuchin are holding talks in Washington with a Chinese delegation this week after meeting together in Beijing last week. The current round of talks is scheduled to go through Friday and possibly longer.
Hopes that the talks were moving in a positive direction have cheered financial markets in recent weeks. But US stocks were mixed on Thursday as investors waited for more developments in the trade negotiations, with the Dow Jones industrial Average slightly higher, and the S&P 500 and Nasdaq Composite slightly lower. [.N]
The United States is seeking reforms to Chinese practices that it says result in the theft of US intellectual property and the forced transfer of technology from US companies to Chinese firms.
Administration officials initially envisioned a summit between Trump and Xi potentially taking place in March, but some U.S. lawmakers and lobbying groups have said recently they were told that the administration was now aiming for a deal in late April. — Reuters.