Despite conflicting statements from China and the US regarding trade talks, economists at Morgan Stanley expect that both nations will engage in negotiations and gradually reduce tariffs on Chinese imports to 60 per cent by the end of the second quarter.
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“We believe that both the US and China will want a comprehensive deal, but that given the multiple issues involved, the discussions are likely to be complex and will take time to complete,” Morgan Stanley said in a note on Tuesday.
Trade disruptions could be a gateway to negotiations, however, tariffs are unlikely to revert to levels seen before January 25, the note said.
More comprehensive talks in the second half of the year could lead to a further reduction in tariffs on Chinese imports, bringing them down to 34 per cent by year’s end, reflecting the removal of the 20 per cent fentanyl-related tariff, according to the note.
Washington has imposed tariffs totalling 145 per cent on Chinese imports so far this year, bringing the effective tariff rate to about 156 per cent. According to a fact sheet released by the White House, China now faces tariffs of up to 245 per cent – a figure that includes tariffs predating the second administration of US President Donald Trump. Meanwhile, Beijing’s new levies on US goods have risen to 125 per cent, also on top of earlier-imposed tariffs.
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Given the damage already done to the economic cycle, Morgan Stanley said that the overall direction of growth was expected to remain downward.