Morgan Stanley warns tariff escalation remains a ‘meaningful risk’ despite partial US-China deal

15-Oct-2019 Intellasia | CNBC | 6:02 AM Print This Post

Morgan Stanley says President Donald Trump’s partial trade deal with China is an “uncertain” arrangement at best and there does not appear to be viable path to reduce existing tariffs at the moment.

The US agreed to suspend a tariff increase on at least $250 billion in Chinese goods to 30 percent from 25 percent set for Tuesday, but a tariff hike implemented in September was not rolled back and plans for another hike just before the Christmas holiday on December 15 remain in place.

Without a durable dispute settlement mechanism in place, another round of tariff increases cannot be ruled out,

according to Morgan Stanley.

“There is not yet a viable path to existing tariffs declining, and tariff escalation remains a meaningful risk,” the bank said in a note. “Thus, we do not yet expect a meaningful rebound in corporate behavior that would drive global growth expectations higher.”

The president said that the first phase of the trade deal will be written over the next three weeks. As part of phase one, China will purchase between $40 billion and $50 billion in US agricultural products.

Evercore wrote that the first phase of the US-China trade deal doesn’t clear the air for global corporations to decide on where to invest, produce hire or source. If the US maintains a “stop the China rise” mentality perspective, the trade war will continue, the firm wrote.

“Trump’s statement that ‘We are near the end of the trade war’ is not plausible to us,” Evercore wrote in a note. “We do not expect tariff cuts in 2020 but are ready to be favourably surprised.

“And as long as such punitive tariffs remain, we would describe US-China economic relations as bad, not good.”

Goldman Sachs sees a 60 percent chance that the announced 15 percent tariffs will take effect, but expects a delay until early 2020 as opposed to the current deadline of December 15. Evercore said it expects a delay and no additional tariff hikes in 2020.

In the past year, the US has set tariffs on billions of dollars worth of Chinese products, and China has retaliated with its own levies, igniting concern over slower global economic growth and weaker corporate earnings.

JP Morgan said the first phase of the deal is a positive development after months of trade escalation, but that the outcome is not a surprise for the market. It expects that US-China tension could escalate again, especially during the 2020 presidential election.

“Investors had high hopes for some form of mini-deal in the weeks before the meeting, and Friday’s announcement has at least been partially, if not fully, priced in,” the firm wrote.

Macro impact of the mini deal removes some downside risk in the next quarters, but does not affect the economic slowdown trend, JP Morgan wrote. The bank’s growth forecasts are 6.2 percent in 2019 and 5.9 percent in 2020.

https://www.cnbc.com/2019/10/13/trade-deal-morgan-stanley-warns-tariff-escalation-remains-a-meaningful-risk.html

 


Category: China

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