UBS Group AG has cut its forecast for China’s GDP growth from 6.2 percent to 6 percent for next year after the US announced an extra 10 percent tariff on US$200 billion of Chinese goods.
The escalating trade war is unfavorable to Taiwan as China is its biggest export destination, accounting for 41 percent of its outbound shipments last month, when they increased slightly by 1.9 percent from a year earlier, the Ministry of Finance said, adding that exports might contract this month as sentiment weakens despite the advent of the high sales season.
“We estimate that additional tariffs of 25 percent on US$50 billion plus 10 percent on US$200 billion of Chinese exports will have a 0.5 percentage point drag on Chinese GDP growth in the following 12 months,” the Swiss company said.
The drag might weaken China’s economic growth by 0.8 percentage points next year, it said.
Over the longer term, sustained trade tension and tariffs from the US are likely to increase business uncertainty and hurt investment, although the impact is hard to quantify, UBS said.
The impact on export and related jobs might range from 0.5 million to 1.2 million, it estimated.
China might delay retaliatory tariffs on US$60 billion of US goods until January next year, it said.
US President Donald Trump has said he would impose additional tariffs on all Chinese exports if Beijing takes retaliatory measures.
Rather, China might opt to increase policy support with limited retaliation, UBS said.
“We expect China to support exports through increased cooperation with other trading partners, more export tax rebate and trade credit support,” it said.
More importantly, China is further easing domestic monetary, credit and fiscal policies to offset the negative shock with more infrastructure investment, UBS said.
Beijing might announce additional measures this fall or during the economic work conference in December, UBS said.
The People’s Bank of China might lower its reserve requirement ratio by least 100 basis points this year, but leave benchmark policy rates intact, UBS said.
Against this backdrop, the Chinese yuan might depreciate against the greenback to 7 yuan versus the US dollar toward the end of this year and to 7.3 yuan late next year, it said.
UBS also revised down China’s current account surplus, which it said could disappear due to slower export growth.
Taiwan’s currency and policy rate directions have tracked China’s rather than the US in recent years due to its heavy economic reliance on its neighbor across the Taiwan Strait.
Several Taiwanese electronics makers have indicated plans to relocate semi-finished products from China to facilities in ASEAN nations to avoid tariffs.
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