US: Weaker-than-expected Section 301 remedies against China – Nomura

Yesterday’s announcement that the US is considering tariffs of 25% on $50bn of imports from China came in below expectations, according to analysts at Nomura.

Key Quotes

“President Trump directed the office of the US Trade Representative (USTR) to take action against China following the release of USTR’s Section 301 investigation into China’s intellectual property (IP) policies. However, the actions announced came in below our expectations. Even factoring in possible retaliatory measures from China, today’s announcements do not materially affect our economic forecast.”

“Importantly, all of these actions have significant implementation lags. The earliest the tariffs would take effect would be a month and a half from now, although it could be significantly later as USTR will take time to review and analyze public comments. The WTO dispute and investment restrictions both have mandatory 60-day reporting periods, but no mandatory action within that time frame.”

“Also, the developments this week coincide with some notable progress in the NAFTA renegotiations. Various and widely reported news reports indicated that the US dropped the 50% content requirement for autos, a material sticking point during the talks. While important NAFTA negotiation obstacles remain, most notably revamping the dispute settlement mechanism, developments this week indicated some softening in the US position. At the moment, we see no need to revise lower our probability of eventual US withdrawal, currently at 40%.”

“Taken altogether, trade risks remain a point of concern for our economic outlook. However, the weakening steel and aluminum tariffs, softer-than-expected Section 301 announcement against China, and a slightly brighter outlook for NAFTA indicate that perhaps trade tensions are not quite as high as previously assumed.”