Trump said in two tweets at the start of the Asian week that the U.S. will increase tariffs on $200 billion of goods from 10% to 25% on Friday, May 10. He also plans to impose 25% tariffs on an additional $325 billion of goods.
Trump desires a quick deal which ends up in a high-profit official summit between the two presidents. However, details have bogged down its progress.
The tweets mark a reversal in Trump’s stance toward trade talks. In Trump’s view, the U.S. is in a position of strength following a series of positive data releases, including the employment data that was released on May 3.
We previously estimated that the tariffs increase will reduce U.S. GDP medium-term by 0.3% and China GDP by 0.6%. This is despite some near-term benefits for the U.S. economy. If realized, the latest proposed tariff measures are greater than our previous scenarios. Hence, they could have a bigger impact.
We believe that this is likely to raise pressure on China to concede. Recent reports stated that China was unwilling to cut back on subsidies to state-owned enterprises.
In our view, the U.S. and China will soon reach a conclusion. Trump’s pushes are likely to move the trade talks to a close earlier than not. However, it may also push China against seeking a trade deal. China is now considering whether to delay or cancel its Washington trip this week.