Consistent with our view last month that the Trump administration’s more significant (and market-moving) trade actions had yet to come, the recent announcement of tariffs on Chinese products related to the Section 301 intellectual property investigation has roiled markets and increased uncertainty over the possibility of a trade war.

At this point, while the administration has released a proposed list of roughly 1,300 Chinese products subject to tariffs (and is exploring tariffs on $100 billion in additional products), no tariffs have actually been imposed. The list is out for public comment until May 11, followed by a public hearing on May 15. While this theoretically leaves the door open for the U.S. and China to negotiate a settlement that avoids tariffs altogether, we are not optimistic that a compromise can be reached so quickly – especially given the less-than-productive meetings to date between U.S. and Chinese officials and U.S. policymakers’ conviction that China is not playing fair in its treatment of American intellectual property.

Direct GDP impact should be modest …

With all of that said, we would expect the direct economic impact of the announced tariffs to be relatively modest (though negative) and to be dwarfed by the positive effects of the recent tax and spending bills on U.S. GDP.

The roughly 1,300 products potentially subject to an additional 25% U.S. import tariff in the United States Trade Representative (USTR) report account for only $46.3 billion (about 0.2% of U.S. GDP) of the roughly $2.3 trillion in goods the U.S. imported from the rest of the world in 2017, according to U.S. International Trade Commission data. The top three products (by China import value) include computers and related data processing machines and storage ($3.9 billion); media, TV and broadcasting parts and equipment ($1.1 billion); and motor vehicle seats ($0.4 billion). The U.S. can source most, if not all, of these goods from other countries. Chinese imports accounted for just 7% of the total value of these products that the U.S. imported in 2017.

Meanwhile, so far China has responded in kind. The 25% tariffs on the U.S. products identified by China’s Ministry of Commerce are estimated at $48.8 billion (again, about 0.2% of U.S. GDP), compared with $1.5 trillion annual total U.S. goods exported globally, and include aircraft ($15.7 billion), soybeans ($12.3 billion) and vehicles ($8.3 billion), among others.