Trade expert outlines what's next in the US-China tariff battle

  • The world is now awaiting U.S. President Donald Trump's decision on when and how he'll implement a proposed $200 billion in additional tariffs on Chinese goods.
  • The most likely scenario is to break up the $200 billion tariffs into batches, said Simon Lester, associate director of Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies.

With U.S. President Donald Trump not backing down from a trade dispute with China, the world is now awaiting his decision on when and how he'll implement a proposed $200 billion in additional tariffs on Chinese goods.

The most likely scenario is that the Trump administration will break up the $200 billion tariffs into batches, according to a trade expert from libertarian think tank Cato Institute.

"Remember the previous stage when they authorized $50 billion worth of imports: They started with $34 billion and later they added another $16 billion. So here, let's say they authorize tariffs on $200 billion of imports, maybe they'll start with $20 billion," said Simon Lester, associate director of the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies.

"They're slowly ratcheting this up, so I think it's likely that we will see more tariffs come," he told CNBC's "Squawk Box" on Monday.

The $200 billion in U.S. tariffs on Chinese goods, if imposed, would mark a major escalation in trade tensions between the world's two largest economies after their latest round of talks concluded with few signs of progress.

So far, the U.S. has imposed tariffs on $50 billion of Chinese goods and China has retaliated in kind.

Bloomberg, citing "six people familiar with the matter," reported last week that the U.S. could impose tariffs on $200 billion worth of Chinese imports as early as this week. China had earlier said it's prepared to retaliate with its own tariffs on about $60 billion worth of U.S. goods.

And further escalation is likely, Lester said.

"My sense is that, until there's some hiccup in the U.S. economy, the Trump administration believes its strategy is working and they're going to stick with it," he said.

Lester added that there has been anecdotal evidence of American companies being caught in the trade war, but there's been no effect demonstrated in U.S. economic data because "the amount of trade affected so far is actually somewhat small in terms of the overall U.S. economy."

He said third-quarter economic data in the U.S. could show some dent, but it's difficult to nail down a specific prediction because "we're all learning as we do what the impact of these tariffs are and what political impact they have as well."

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