Trump's next move in the US-China trade war could hit your wallet harder than the last

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Trump's next move in the US-China trade war could hit your wallet harder than the last

After months of trade escalations between Washington and Beijing, headlines about incoming tariffs on Chinese products may seem almost routine. But the next round of escalations would be a whole new game for American consumers, triggering broader effects on prices and on the US economy.

While widespread inflationary pressure from tariffs hasn't been apparent so far, according to analysts at Citi Research, that could quickly change. There have already been signs of modest price pressures building across the US, particularly within supply chains.

"The additional tariffs on China have the potential to boost inflation even more than what we currently anticipate," the analysts wrote of the proposed next round of tariffs. President Donald Trump has signaled tariffs on roughly $257 billion worth of additional Chinese products, using 2017 import figures, are ready to go.

How would this round be different from the previous few? The import taxes implemented to date — on about $250 billion worth of products — include less than half of consumer goods imports from China affected so far, according to Citi.

But the next round of duties would effectively place a tax on every Chinese product coming into the US, including thousands of household products. Meanwhile, the tariff rate on currently affected Chinese products is set to more than double from 10% to 25% in January if trade issues aren't resolved.

What's more, many of the remaining products might not be easily found outside of China. For example, that country holds more than half of the market share on American imports of leather products, furniture, and televisions, according to analysis by Deutsche Bank.

Assuming no change in the exchange rate, Citi estimates the next escalation could have 10 times the estimated inflationary impact of the first round of tariffs within a year. The Chinese yuan fell to its weakest point in a decade this week, nearing a key level of 7 per dollar.

Trump is expected to meet with Chinese leader Xi Jinping at a multilateral summit in Argentina next month. He recently told Fox News he thinks there will be a "great" deal. But if the talks fail, Bloomberg reported the next round of tariffs could be announced as soon as December. The White House did not respond to an email requesting comment.

In China, on the other hand, analysts say lower oil prices and planned general import-tariff cuts might help mitigate inflationary pressures from retaliatory duties. Earlier this year, Beijing announced it would lower the average tariff rate on imports from many of its trading partners.

"We believe the overall inflation risk remains contained so far, and the mild inflation is not to affect Beijing's ongoing policy easing agenda," said analysts at Nomura Research.

Against a backdrop of an already slowing economy, Chinese officials have been rolling out new expansionary policies left and right. While gross domestic product in the country grew at its slowest pace in nearly a decade in the third quarter, according to government data, exports have held up better than expected.

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