China Trade War- one major bank doubts it and now another one agrees.

During his campaign, president-elect Donald Trump threatened steep tariffs against China, which he accuses of manipulating its currency to favor exports, and also pledged to bring back jobs from the world’s largest manufacturing hub. Analysts, of course, have sought to look beyond the rhetoric and a near consensus eliminates the possibility of an all-out trade war.

Trump Tariff On Chinese Exports Would Kill China

China Trade War Trade War With China

Now HSBC has come up with an analysis that should further dispel those fears. The British bank said it studied the potential impact of some of Trump’s more extreme proposals, including a 45% tariff on Chinese imports, and found that a trade war of such high magnitude is unlikely because it would be so bruising to both countries.

“The hypothetical analysis and the high likelihood of retaliation by the Chinese authorities led us to believe that the mutual damage would be too great for such strategies to be sensible,” the bank said. “Instead, more realistically, the extreme measures will likely be used as bargaining chips, while both sides focus on more substantive issues.”

China Trade War  – Trump’s Unclear Position on China

Since his election on Nov. 8, Trump has amended or even reversed his stance on a number of issues, among them the prosecution of his Democratic rival Hillary Clinton. But he has maintained some such as climate change and it is not clear where he stands on China.

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China Trade War

Trade War With China

Among other things, the U.S. seeks from China greater market access for American companies and a shorter negative list; better intellectual property protection; and less protection for China’s state-owned enterprises. On the other hand, China demands from the U.S. market economy status; fewer restrictions on exports; transfer of technology; and more transparent investigations on national security ground.

HSBC says most of these demands are outside the framework of the World Trade Organization, and consequently need prolonged bilateral negotiations. Together with the evolving needs of both countries, what is needed is a new “framework of understanding,” not punitive action that will benefit neither, the bank said.

“Although at times the two sides may seem too far apart to reach common ground on many issues, it is important to bear in mind the bigger point that cooperation has yielded far more economic benefits to both sides, as well as the global economy,” HSBC said. “Moreover, the fast-changing structure of the Chinese economy means that there are always fresh opportunities to work together. In this light, China’s fast-growing Overseas Direct Investment should be seen as something that can be channeled to achieve mutual benefits.”

Trade War With China

The report praised China for managed a slowdown all through this year, with consolidation continuing in 2017. “The stabilization in China’s economy in 2016 has been a welcome development. Will 2017 see a continuation of this trend? We think so. We think reflation will continue as demand holds up and deflation continues to ease,” the bank said.

Trade War With China

Even though the housing market will likely slow further, the overall impact on growth will be “manageable,” and infrastructure will remain a key driver of growth. A stable monetary policy and a continued expansionary fiscal policy in 2017 are expected to further ease deflation.