Economist predicts prolonged trade war

Economist says no end in sight for US / China trade war


A leading economist predicts the US / China trade war to drag out until at least next year's US elections.

Erik Norland, CME Group executive director, expects the trade war to drag on for some time yet.

Erik Norland, CME Group executive director, expects the trade war to drag on for some time yet.

A SENIOR official with the world's leading derivatives marketplace, the CME Group, predicts the escalating trade war between the US and China will drag on at least until next year's US presidential elections.

London-based Erik Norland, CME Group executive director and senior economist, said there was little to gain for either side from a compromise.

"I would not be looking for a resolution before the US elections (in 2020)," Mr Norland said during a recent visit to Australia for the Australian Grains Industry Conference (AGIC).

"I don't think either President Trump or Xi Jinping would be happy to accept the loss of face from backing down so this one could drag out for some time yet," Mr Norland said.

World markets are reacting anxiously to the ramping up of the war between the two heavyweight economies of the planet.

Wall Street this week recorded its worst trading day of the year, while locally the Aussie dollar is at close to decade lows against the US dollar, reflecting our exposure to the Chinese economy.

Last week President Trump announced a widening of tariffs on imports from China with a host of products slapped with 10pc duties, while in retaliation the Chinese government devalued its international currency, the yuan, making it more competitive as an exporter.

The yuan has dropped to its lowest levels against the US dollar in a decade, crucially below the 7 yuan per US dollar accepted as a benchmark.

On the agriculture front, China has stopped buying US farm products.

However, Mr Norland said the impact of the trade war may be overstated.

He pointed to data showing even at worst case scenarios of 25pc tariffs, impact on key macro-economic factors such as Chinese grtowth and US consumer price index (CPI) would be influenced by less than half a percentage point.

"The markets by and large will have bigger fish to fry, monetary policy and debt are much bigger concerns."

Peter McMeekin, Grain Brokers Australia, said US had an advantage as it imported more goods from China than China did from the US, but on the other hand, China controls the rare earth market, critical for electronic devices.

Mr McMeekin said US soybean farmers were among those feeling the tariffs the worst, with volumes of exports to China almost 80pc down on the three year average at around 6 million tonnes.

However, Mr Norland said this would not necessarily see the key soybean producing states across America's mid-west pull their support for President Trump.

"It is not as simple as just what the farmers want, states such as Michigan also have very strong manufacturing sectors which are in favour of the trade sanctions.

"In other states further to the west and south where there is more ranching, which is also not favoured by the sanctions, there is probably more opposition to Mr Trump's position, but it is far too complex to simply sum up in a couple of sentences."

Mr Norland also said the tax gathered from the sanctions was being funnelled through to support agricultural-based programs.

"A lot of the tariff earnings are going back into agriculture so Mr Trump is also keeping sections of the farm lobby onside this way as well."

Mr Trump has launched a support package for farmers impacted by the trade war of a whopping $A16 billion.


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