UBS economists said Wednesday their prior assumption was wrong and they now believe the U.S. trade war with China is escalating and could hurt the economy. Their note followed the Trump administration's announcement Tuesday that it plans tariffs on a further $200 billion in Chinese goods.
The economists said they now see the potential for a trade war that could cause supply-chain disruptions, create inflation and bite into GDP.
They said they had expected just a list of new tariffs, but the U.S. Trade Representative is seeking an expedited process to impose the tariffs as part of its existing case. That means the supplemental action will have its own hearing Aug. 20-23 and could be implemented by the end of September.
"Once the administration implements the additional $200 billion in tariffs, the Chinese government will almost surely retaliate. On this path, the US government would then almost surely retaliate in response, raising the stakes immediately to $450 billion in imports of Chinese goods under tariff," they said in a note.