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Global trade skirmishes have entered round two. The United States’ first import tariffs covered washing machines and solar panels and took effect in January 2018. Now Washington has approved $50bn of tariffs on Chinese industrial goods, provoking retaliation from Beijing, and US levies on cars imported from Europe and elsewhere could be next.

A 25% tariff on imports of cars and components would be bigger than all of the tariffs imposed so far and hit the EU, Japan and Korea, making this a real game-changer.

The overall impact on the global economy depends on whether new tariffs are implemented in full. But even those already in the pipeline threaten to weaken an already slowing trade cycle and broader impacts could stem from weaker asset prices, sentiment and investment spending.

And rather than shrink the US trade deficit, the associated fiscal stimulus is more likely to widen it.

Consumer goods comprised 12% of the April list of Chinese imports facing 25% US tariffs but that was later reduced to just 1%, concentrating the levies on industrial products. That should imply a smaller impact on US inflation, though consumers may be less protected from further rounds of tariffs.

But the initial $34bn of Chinese goods facing tariffs are likely to be followed by another $16bn. That would affect around 12% of China’s exports to the US and around 2.2% of its total overseas sales – equivalent to 0.4% of the country’s nominal GDP. If exports of affected products fall by nearly 30%, as assumed, China’s GDP growth could be shaved by 0.1 percentage point this year.

Unsurprisingly, China has retaliated with 25% tariffs on a range of US imports totalling $34bn, focussing mostly on agricultural products but also on vehicles and oil, gas and coal. This will likely raise China’s inflation, particularly via pork prices.

But China cannot keep retaliating dollar for dollar because it doesn’t import enough from the US. It may thus impose regulatory tests and physical border checks that delay and disruption supply chains. And the rest of Asia, highly exposed to China, would suffer if its export growth slows, even if some countries gain market share in certain products.

A US Department of Commerce investigation into auto tariffs will report before February 2019 – quite likely before November’s mid-term elections. While the threat was aimed at its partners in NAFTA – the US-Canada-Mexico trading bloc – vehicle tariffs would have a far wider impact.

The tariffs already imposed by the US on imports of washing machines, solar panels, steel and aluminium from China amount to 3.7% of all US imports. Proceeding with tariffs on vehicles and auto parts would amount to about a further 9%.

The direct impact on US and global growth and inflation from its tariffs and retaliation by others should be small, avoiding the implosion of world trade seen in 1929-33. However, the US still accounts for 13% of global imports. Countries dependent on export-led growth would thus be vulnerable, though much of the impact may come through via equity markets, confidence and, particularly, weaker investment spending.

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