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Trade war with China will hurt U.S. in 2019: Moody's

US industries feel impact of Trump's tariffs
US industries feel impact of Trump's tariffs 02:48

Worsening trade relations with China are likely to hurt U.S. economic growth next year, according to Moody's Investors Service. 

The stark warning comes as the U.S. on Thursday imposed the final tranche of tariffs on $50 billion of Chinese goods, with China retaliating in kind by placing new levies on American goods. Trade envoys from both countries are meeting in Washington this week for their first high-level talks in months, but without signs of progress.

Moody's forecasts that higher American tariffs on Chinese imports could reduce U.S. gross domestic product in 2019 by 0.25 percent, to an annualized rate of 2.3 percent, offsetting some of the gains from last year's tax cuts. But the economy would take a bigger hit if the U.S. proceeds with President Trump's threat to impose 25 percent tariffs on $200 billion of Chinese goods, as well as steep duties on cars and auto parts.

"The implementation of either would pose a large adverse shock through multiple channels, and would signify a serious escalation in the trade dispute.…, " Moody's analysts said in a report. "At 25 percent, the tariffs on $200 billion worth of Chinese products will likely result in significant price increases for a number of products consumed in the U.S."

The Trump administration shows no signs of backing down as it confronts China over trade issues. The U.S. Trade Representative on Monday began a week-long session of planned hearings on the proposed $200 billion in tariffs. Mr. Trump is also considering a similar duty on every auto and auto part that enters the U.S.

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Mr. Trump and U.S. trade officials argue that China forces American companies business to effectively hand over intellectual property, such as patents, in exchange for doing business in China.  He is seeking to punish China under a part of a 1974 trade law, commonly known as Section 301, that allows for tariffs.

Yet most U.S. companies oppose hiking tariffs, saying a trade war risks stifling global growth and resulting in the loss of American jobs. Mr. Trump doubled down in July and said he's willing to place tariffs on all Chinese imports, or more than $500 billion, if no agreement is reached.

Escalating trade tensions come at a delicate time for the U.S. and global economies. While noting the robust job growth in the U.S. and surging confidence by businesses, "[W]e think that growth is peaking, and rising trade tensions come at a time when global activity is already slowing," Gregory Daco of Oxford Economics said in a client note. 

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