Bassanese Bites: Eye-to-eye – Week beginning: 13 May 2019

US President Trump’s decision to escalate the Chinese trade war – in an apparent response to 11th hour backtracking by China – was the major focus of markets last week, with the S&P 500 shedding 2%.  As of Friday, the US has lifted the 10% tariff on $US200b in Chinese imports to 25% and indicated plans to impose a 25% tariff on the other $US300b worth of Chinese imports.

All told, that amounts to a not insignificant tax slug equal to around 0.7% of America’s $US19 trillion economy that US firms must now pay should they wish to continue importing from China. Of course, some could switch to (presumably higher cost) alternative suppliers, and some Chinese exporters might elect to effectively pay the tariff by cutting their (pre-tariff) price charged US importers.  But in the main it will be US importers, and ultimately US consumers, that will bear the burden.  Meanwhile, China has vowed to retaliate.

That said, the potential market fallout has been limited by continued expressions of hope from both sides that a deal can be ultimately reached.

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