What does the threat of Littichida mean for trade negotiations?

Market theory

U.S. President Trump has attracted the attention of tariffs issued by tweets that attracted the attention and cracked down on the market.For this unobstructed president, not all its interventions will be transformed into policies.

However, with the (US trade representative) Leitzizer and Treasury Minister Mnuchin's addition, it is clear that these tweets reflect the changes in negotiations and the change of government thinking.

It is difficult to give a high probability to any specific negotiation results.Our basic judgment is that this is the end of the abnormality of trade negotiations and chaotic. The suspension will continue and eventually reach an agreement.But at the same time, the possibility of negotiation rupture and increased tariffs increased significantly.The possibility of rapidly reaching an agreement and reducing tariffs seems very low.

With the suspension of interest rate hikes with the Fed and China's increase in policy stimulus, the trade off war is the three pillars to support the global growth prospects.If hostile operations are restored, we expect that China will take stronger stimulus measures to offset its influence.Nonetheless, we will still reduce the expectations of global economic growth. The main affected will be China and its Asian neighbors.

According to our calculations, the current level of tariffs on China's GDP (domestic GDP) growth is 0.5 percentage points.If Trump compensates the threat and increases the tariffs of US $ 200 billion in Chinese products to 25 %, then the drag on GDP will rise to 0.9 percentage points.If tariffs are imposed on all goods exported to China to the United States, it will rise to 1.5 percentage points.

The United States is less affected.According to the estimation of the International Monetary Fund, as tariffs are upgraded, the drag on US GDP will be only 0.2 percentage points.This reflects that the proportion of exports in the US economy is smaller than China.The market's different reactions to Trump's Sunday tweet MDASH; MDASH; Monday China CSI 300 Index fell 5.8 %, while the S & P 500 index fell only 0.5 %, highlighting that China would suffer greater losses.

The author is Bloomberg Chief Economist