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S&P: China trade war would cut 1 percentage point from US growth by 2021

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S&P: China trade war would cut 1 percentage point from US growth by 2021

The ongoing tariff dispute between the U.S. and China has yet to put a major dent in economic expansion, but the eruption of a full-blown trade war would shave about one percentage point off of the U.S. GDP growth rate by 2021, S&P Global Ratings said.

The rating agency warned that in a full-blown trade war, in which Washington and Beijing hit each other with additional tariffs of 25% on all non-fuel goods, the U.S. economic growth rate would lose about one-third of a percentage point, on average, from 2019 to 2021.

China's economic growth rate would lose two-tenths of 1% per year over the same period, or six-tenths of 1% by 2021, S&P said.

"Even if such a trade war doesn't materialize, the mere perception of the heightened risk of one could be sufficient to depress business and market confidence to an extent that it has a significant impact on the real economy," the S&P report said. "While it's difficult to ascertain the magnitude of such a shock, we think it would likely exceed the effects of trade fundamentals alone, at least on the global level."

U.S. President Donald Trump is reportedly prepared to impose the planned 25% tariff on $200 billion of Chinese imports as early as Sept. 6, when the public comment period on the proposal ends.

The proposed tariffs would target various consumer goods including appliances, furniture, hats, handbags, bicycles, vacuums and mattresses.

Trump said that talks between the two countries would continue, but the U.S. was not yet ready to come to an agreement with China.

"We've done very well in negotiations with China but we're not prepared to make the deal that they'd like to make," Trump told reporters at the White House.

S&P said higher tariffs and other protectionist trade measures will raise prices and hurt all consumers, in addition to the impact on companies that import raw materials and on workers in export industries.

Instead of focusing on the trade imbalance with China, the U.S. should look at resolving "pressing multilateral issues" that are "more beneficial for all sides" such as market access and investment restrictions in China, the S&P report suggested.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.