IMF: Trade Tensions Slashs US, Chinese Consumer and Producer.

JAKARTA (TheInsiderStories)United States-China trade tensions that have lasted more than a year have hit negatively on consumers and many producers in both countries. Rates have reduced trade between the US and China, but the bilateral trade deficit has remained unchanged broadly, according to the International Monetary Fund (IMF) economists released on Thursday (05/23).

Economists Eugenio Cerutti, Gita Gopinath, and Adil Mohommad showed that more restrictions on imports will also make consumer goods that can be traded more affordable, thus disproportionately disadvantaging low-income households. This type of scenario is one reason why 2019 is called a difficult year for the global economy.

The economists view an increase in US rates to 25 percent from US$200 billion in annual Chinese imports on May 10, along with China’s retaliation of $60 billion, marking the latest increase in trade tensions between the two strongest economies.

The impact of the tariffs previously imposed by the US and subsequent retaliation by China has been proven in trade data, that tensions have hit most of the domestic production and consumption sector.

“In cases where there was a delay between the announcement and implementation of tariffs, such as in the case of a $16 billion list and $200 billion, or plans for a $200 billion tariff increase phase, we observed an increase in import growth before the effective date. This shows that importers have a stock in front of the tariff, taking into account the sharp decline in imports afterwards,” they said.

Price data from the Bureau of Labor Statistics on imports from China, found that collected tariff revenues have been borne almost entirely by US importers. There is almost no change in the border price (ex-tariff) of imports from China, and a sharp jump in post-tariff import prices that are in line with the rate.

“Although the direct effect on inflation may be small, this can have a wider effect through increasing prices of domestic competitors,” said the economists.

Meanwhile, the blows to the producers of the two countries are more diverse, with several winners and many losing. Some US and Chinese goods producers compete in the domestic market with imports that are influenced by tariffs, as well as competing third-country exporters, are potential winners.

“However, goods producers in the US and China that are affected by tariffs and producers that use these items as intermediate inputs, are potentially losing parties,” they said.

They pointed out, US imports from Mexico increased significantly among some items subject to tariffs by the US. After a list of $16 billion was implemented in August, a sharp decline of nearly $850 million in imports from China was almost offset by an increase of around $850 million from Mexico, leaving overall US imports broadly unchanged.

Furthermore, another products can be affected is through market segmentation in the price of goods traded. This is clearly observed in the case of soybeans, where US exports to China fell dramatically in 2018 after China imposed tariffs.

The US is China’s dominant soybean supplier, along with Brazil, in 2017. With that tariff, US soybean prices fell while Brazilian soybeans increased, as US exports to China fell near zero and Brazilian exports to China tended to be higher.

The impact on US producers with significant exposure to the Chinese market was also captured in the stock market valuation. For example, the performance of equity prices of US companies with high sales to China is under-performing compared to US businesses exposed to other international markets, after tariffs related to a list of $34 billion in retaliation by China were carried out.

In addition, rising bilateral tariffs have a limited effect on the bilateral trade balance. In fact, in 2018, the trade deficit increased for the US because imports from China rose, partly reflecting the front loading. In March 2019, US exports to China also fell.

At the global level, the additional impact of new US-China tariffs is expected to reduce about 0.3 percent of global GDP in the short term, with half coming from business and the market the effect of confidence.

“The upcoming IMF G-20 Supervision Note in early June will provide further details. This effect, although relatively simple at the moment, comes above the tariff that has been implemented in 2018,” the analysts explained.

Written by Daniel Deha, Email: daniel@theinsiderstories.com

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