UBS: Weighing US-China trade risk

We last wrote on trade tensions in March, when the Trump administration announced its first 25% tariff on USD 50bn worth of Chinese goods as part of its Section 301 investigation into intellectual property. Back then we concluded that while miscalculation was a risk to the economy and markets, ultimately the incentives of Presidents Trump and Xi were sufficiently aligned to avoid a damaging ‘trade war,’ or imposition by both countries of across-the-board tariffs on imports. We make a similar conclusion in this Macro Monthly, except we acknowledge that the stakes have surely risen. President Trump’s initiation of a process to implement tariffs from 10-25% on USD 200bn worth of Chinese goods is credible, in our view. And while less likely, President Trump has also threatened tariffs on auto imports, bringing the administration’s total proposed tariffs to nearly USD 800bn, over a quarter of US imports . Considering likely retaliation from trade partners, these are meaningful numbers which deserve careful attention. In this Macro Monthly we discuss how we see trade tensions evolving, their potential impact on the economy and markets, and considerations for asset allocation. 

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