This week we formally incorporated a further escalation of the US-China trade dispute into our baseline macro forecasts, shaving 0.2% points off US GDP growth both this year and next, taking us to 2.2% and 1.2% respectively. We had previously held out hope both sides could still step back from the brink, with the G20 leaders’ meeting later this month an ideal opportunity to get the talks back on track. But that clearly isn’t going to happen now. The US is insisting that China make major changes to its industrial policy, while China is insisting that any deal removes all the existing tariffs. Neither side is going to agree to those demands.
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