President Donald Trump’s surprise move this week to impose higher tariffs on $200bn of Chinese imports could mark the start of a significant escalation in the trade dispute. Nevertheless, it might also prove to be a short-term negotiating tactic that helps to get a trade deal between the two countries over the finish line. We will know more at the conclusion of the current round of negotiations, which continue today. Even if the dispute escalates, with Trump following through on his threat to extend the 25% tariff to all of China’s imports, the impacts on US real GDP and inflation would still be modest.
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