Trade war escalation will weigh down both China and U.S. GDP

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Europe

01:36

The escalation of trade tension between China and the U.S. increase downside risks for both China and the U.S., it will create a lot of uncertainty, said Zhu Haibin, Chief China Economist and Head of China Equity Strategy of J.P. Morgan.

J.P. Morgan did some analysis based on if the tariff war furthers on a different scenario.

Scenario one is that if the U.S. increase the tariff on the 200 billion U.S. dollars worth of Chinese goods from 10 percent to 25 percent, which means the status quo, according to Zhu.

"We estimated that it will probably affect China's GDP growth by roughly 0.4 percentage points in 2019 and 2020," Zhu said last Saturday during a two-day financial forum themed supply-side reform and opening-up at Tsinghua University.

"For the U.S. side, the economic impact will probably be 0.2 percentage points, and the inflation in the U.S. is also picking up," Zhu said.

"It will indeed be a lose-lose situation," Zhu said.

According to official statistics, China's GDP grew at 6.4 percent in the first quarter of 2019, and the U.S.' GDP growth was pegged at 3.2 percent.

In a more severe scenario, if 25 percent tariff on all Chinese imports, then economic hit on China will probably be much bigger, and the negative impact on the U.S. will also be much bigger.

"We hope that both sides will be taking a rational attitude to maintain the dialogue," Zhu said.

"As a market participant, we are cautious about the downside risk."