US: Tariff-related inflation risks unlikely – Standard Chartered

Should US tariffs on China’s exports be imposed, production will likely shift to China’s competitors and this shift in production should limit the ultimate impact on US producer and consumer inflation, according to Sonia Meskin, US Economist at Standard Chartered.

Key Quotes

“The office of the US Trade Representative (USTR) has proposed a 25% tariff on 1,333 goods imports from China, totalling roughly USD 50bn. This constitutes roughly 2% of total US imports (as of 2017), and about 10% of US imports from China.”

“We conclude that, should the 25% tariff be imposed as currently suggested by the USTR, and assuming tariffs would only affect China’s export contribution to the affected goods categories, the most likely scenario would be a shift in export production from China to other exporters along the value-added chain.”

“In this central scenario, the net effect on the US trade balance and inflation would be small. However, the transition would involve supply-chain disruptions, and domestic US prices could be affected in the interim. Even in Scenario, where we would expect prices of affected imports rise as much as 25%, the impact on producer and consumer prices would likely be moderate.”