US: Economy guided by trade policy - Nomura

Analysts at Nomura point out that in the US, trade tensions escalated further last week as the USTR released a detailed list of products imported from China, totaling $200bn, which would be subject to a 10% tariff.

Key Quotes

“On the one hand, USTR was likely to release the list at some point given President Trump’s directive a few months ago. However, the timing of the release, after a weekend lull in trade headlines, indicates that the current US-China trade dispute could escalate further.”

“Finally, the initial round of tariffs on Chinese imports, targeting $50bn, focused primarily on capital goods primarily affecting upstream manufacturers. However, the new round spills over into consumer goods, raising the risk of a larger negative impact on consumers. It will be important to watch China’s response, the USTR process and any hint of formal trade talks reopening between the US and China. “

“President Trump’s trip to Europe this week did not yield any substantive developments in terms of backing down on the Section 232 national security investigation into US imports of autos and auto parts, many of which come from the EU. However, news reports indicated that European Commission President Juncker will meet with President Trump on 25 July to discuss US-EU trade. This meeting will be an important opportunity to work on an agreement to reduce auto tariffs between the two trading partners.”

“We continue to expect the Department of Commerce to deliver the Section 232 autos report within the coming weeks and believe it likely that Commerce will find that imports of autos and auto parts threaten to impair US national security, similar to the investigation of steel and aluminum products. Failure to make progress on a US-EU bilateral deal raises the risk of President Trump imposing auto tariffs under Section 232 authority.”

“In a sign of discontent with the administration’s trade approach, the Senate passed a nonbinding resolution by a vote of 88-11 on Wednesday calling for Congressional approval of any trade action taken under Section 232 authority. However, any legislation that would materially restrict President Trump’s Section 232 authority would likely require veto-proof – two thirds – majorities in both chambers of Congress, something that appears unlikely at the moment.”