JPMorgan says U.S.-China trade war will escalate, bar is too high for truce

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JPMorgan says U.S.-China trade war will escalate, bar is too high for truce

There’s no relief in sight for the U.S.-China tariff war, according to JPMorgan. In fact, the conflict over trade between the world’s two largest economies is probably poised to escalate, the bank said. Investors hoping for a truce between the Trump administration and China similar to that declared by Mexico and Canada on Monday are likely to be disappointed, JPMorgan’s chief China economist said in a note on Tuesday. “It is not clear whether China and the U.S. could reach an agreement to reach a tariff truce,” Haibin Zhu wrote. “The bar seems to be high,” he wrote in a Tuesday note to clients. “We are not eager to change our baseline assumption of tariff hike to 60%. We maintain the view that the tariff war between China and the U.S. more likely will further escalate from here, but with large uncertainties regarding the timing, the pace and the magnitude of further tariff increase,” the Wall Street bank said. On Tuesday, China announced retaliatory measures against the the 10% U.S. blanket tariff on ******** imports that went into effect the same day. China’s tariffs against the U.S. will start on Feb. 10, and include a 15% levy on coal and liquified natural gas alongside 10% duties on agricultural machinery, crude oil and some cars. On Monday, U.S. stocks managed to claw back some of their early losses after the U.S. and Mexico agreed to pause tariffs for one month following a pledge by ******** President Claudia Sheinbaum to deploy 10,000 national guard troops to the border. Part of the difficulty in the U.S. and China reaching even a similar tariff truce is the result of the difficulty China faces in increasing its purchases of U.S. goods to satisfy the Trump administration. As a result, any agreement between the two “may involve some form of grand-bargaining that will go beyond trade and economic issues to involve geopolitics,” Zhu said. To be sure, President Trump’s rumored visit to China could provide an opportunity for negotiation, the economist added. At the very least, a personal negotiation during a diplomatic trip might mean that higher tariffs are only applied gradually.

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