• Trump’s tariff on solar panels was matched by China’s sorghum probe, raising fears of a trade war

• We expect U.S.-China trade Frictions to intensify this year, as bilateral imbalances continue to widen

• Section 301 remedies appear more harmful for China, relative to impending steel and aluminium tariffs

• We expect a measured response from China, focusing on trade

Trade frictions delayed but not averted

U.S.-China trade frictions are set to intensify in 2018, in our view.China’s trade surplus with the U.S.widened to USD 276 bn in 2017, 10%more than 2016 (Figure 1). Bilateral trade imbalances are likely to worsen further, as the U.S. introduces fiscal stimulus and China pursues deleveraging. Politically, President Trump appears ready to live up to his campaign promises to punish China for alleged unfair trade practices, especially after hopes of China pressuring North Korea into backing down on its nuclear programme were shattered,and as U.S. mid-term elections draw near. We see Trump’s recent decision to impose a 30% tariff on imported solar panels as a precursor to more trade clashes.

2.2.3 叶柄长度 从图5看出，4月10日至6月7日，桑树新梢叶柄长度生长量有7次生长高峰，从5.3 mm增至68.4 mm，增长11.91倍，经过快、最快、快、较快、较慢、较快和慢的过程；其日生长量有3次生长高峰，日生长量为0.03～3.03 mm，从表2看出，桑树新梢叶柄长度的生长量和日生长量变化与时间变化间形成二次回归方程曲线的相关系数大于直线回归方程的，回归方程曲线符合二次曲线规律。其生长量和日生长量变化与时间变化的相关性分别呈高度正相关和正相关，其显著性分别呈极显著和显著水平。

Trump will likely introduce import restrictions on steel and aluminium on national security grounds in the coming months. The impact on China’s trade should be insignificant,as steel and aluminium exports to the U.S. accounted for less than 0.2% of China’s total exports in 2017. However, the ongoing investigation of forced technology transfers pursuant to Section 301 of the U.S. Trade Act is likely to result in remedies that affect a wide range of Chinese products.

A trade war is quite unlikely in our view. We expect China to respond by restricting imports from the U.S. and its access to China’s fast-growing service sector. Devaluing its currency and selling U.S.Treasuries (USTs) are both double-edged swords, and hence unlikely to be deployed as first-round countermeasures. We believe a deal can be reached to curb bilateral imbalances.

Trade war threat looming large

The Trump administration took its first major trade action at the beginning of the year, raising fears of atrade war. On 22 January, President Trump decided to impose a 30% tariff on imported solar panels and up to a 50% tariff on washing machines,effective 7 February. The decision followed findings by the U.S. International Trade Commission (ITC) that both imported products had hurt U.S.manufacturers. The solar panel tariffis a blow to China, while the washer tariff affects Korea and Mexico the most. As the U.S. renegotiates trade agreements with Korea, Canada and Mexico, the move has sent a strong signal that Trump will follow his campaign promises to get tough on trading partners.

Figure 1: China’s total trade surplus shrank, but surplus with the US widened USD bn

Source: CEIC, Standard Chartered Research

The ITC did not disclose financial data regarding solar imports from China, but estimated that China’s exports accounted for nearly half of global solar exports in 2016.According to China’s data, solar exports amounted to USD 11.4 bn in 2017. Assuming 20% of China’s exports went to the U.S., the newly imposed tariff, which will fall to 15% from 30% within four years,would affect roughly 0.1% of China’s total exports.

多具有不规则状晶形，与石英、云母等脉石矿物关系密切，少部分与黄铁矿连体，白钨矿中含钨约为60.81%，粒度主要为中细粒，占75.14%，部分为微细粒，占12.02%，少量为粗粒，约占12.82%。矿石中的白钨矿解离度较好，-0.074 mm含量占65%的磨矿细度下，92.73%的白钨矿已单体解离，6.49%的白钨矿与脉石矿物共生。因此，白钨矿主要分为两类，一类多数为单体解离，但粒度大小差别较大。另一类粒度较细，与脉石矿物与石英、长石等脉石矿物共生或呈港湾状接触，或包裹于脉石矿物颗粒中。

Remedies in the Section 301 inves-tigation would affect a broader range of products. After the U.S. Trade Representative makes an affirmative determination, the next steps will likely proceed in two tracks: (1) the U.S. may choose to initiate a WTO dispute regarding China’s APPs if they are considered to be in violation of WTO commitments;and/or (2) the U.S. may take unilateral retaliatory action, including duties or import restrictions. According to media reports, the U.S. Trade Representative has already completed the investigation,and is now considering whether to impose steep tariffs on a large number of imports from China. Inside U.S. Trade said the remedies against China would include “significant tariffs covering retaliatory action in the trillion-dollar range”, and such a high number is based on “the cumulative damage, the U.S.believes China’s intellectual property and technology transfer policies have caused over the past 10 years.” Axios Media indicated that Trump may increase tariffs on Chinese consumer electronics in retaliation to the country’s alleged theft of American companies’intellectual property. Based on ITC data, consumer electronics imports from China amounted to USD 17 bn in 2014,about 0.7% of U.S. total imports.

由图8可以看出，储罐气相压力从0.42 MPa到1 MPa，需要时间大于58 h。由此可以判断:①对于加液卸液频繁的LNG加气站，则可以实现槽车的BOG回收;②对于加液不频繁的LNG加气站，则保守估计可以维持2～3天时间无排放存储。

Figure 2: Share of steel and aluminium products in China’s exports, 2017

Source: CEIC, General Administration of Customs, Standard Chartered Research

More clashes on the horizon

A few U.S. investigations into imports from China could lead to restrictive trade measures in the next few months.

Trade frictions are likely to intensify this year, as bilateral imbalances continue to widen. We anticipated escalation of U.S.-China trade frictions a year ago, but the scenario did not materialise in 2017 largely because Trump had sought China’s collaboration in terminating North Korea’s nuclear weapon programme.The lack of progress in dealing with North Korea appears to have made Trump impatient. More importantly,China’s trade surplus with the U.S.rose by 10% last year and reached USD 276 bn, even though China’s total trade surplus shrank by 17%, according to China’s statistics. The U.S.data confirms the widening of the bilateral trade imbalance, with the trade deficit with China increasing by 8% and amounting to USD 375 bn in 2017. We expect the bilateral imbalance to increase further in the near term as the U.S. introduces fiscal stimulus (tax cut and investment in infrastructure) while China pursues deleveraging.

• In April 2017, the Trump administration said it would review whether U.S. imports of cheap Chinese aluminium and stainless steel threatened national security, using Section 232 of the Trade Expansion Act of 1962. In January 2018, the Department of Commerce formally submitted to President Trump the results of the investigation. The President has 90 days to decide on any potential actions based on the findings of the investigation.

• In August 2017, the White House launched a separate investigation under Section 301 of the Trade Act of 1974 into China’s intellectual property practices. The investigation sought to determine whether acts, policies and practices (APPs) of China related to technology transfer,intellectual property and innovation burden or restrict U.S. commerce.The U.S. Trade Representative is expected to make affirmative findings and remedy recommendations well ahead of the August 2018 statutory deadline.

Genetic and epigenetic alterations have been implicated mainly in the activation of oncogenes and/or the inactivation of tumor suppressor genes that are involved in cell-cycle regulation, cell-cell adhesion, DNA repair, and telomerase activation during gastric carcinogenesis.

• Both investigations, using laws written before the establishment of the WTO, would allow the U.S. administration to levy tariffs on the Chinese goods.

Higher import tariffs on steel and aluminium would have an insignificant impact on China’s exports.In 2017, China’s steel exports to the U.S. amounted to USD 2.0 bn, about 3.6% of China’s total steel exports;China’s aluminium exports to the U.S.amounted to USD 1.9 bn, about 16%of China’s total aluminium exports(Figure 2). Steel and aluminium exports to the U.S. accounted for only 0.17% of China’s total exports. From the U.S.’ perspective, China accounted for 7% of imported steel and 10%of imported aluminium (Figure 3).Levying high import tariffs on China’s steel and aluminium could give Trump a political win in the Rustbelt states without materially disrupting bilateral trade.

(1)随相对冲磨角度的增大，Q235、40Cr和ZL102三种材料的质量磨损强度和体积磨损强度增加到某一峰值后缓慢下降，其最大质量磨损强度和体积磨损强度分别出现在30°，45°和15°附近.

China was quick to respond.On 4 February, China’s Ministry of Commerce decided to initiate anti-dumping and countervailing investigations on sorghum imports from the U.S., to be concluded in one year.Meanwhile, China is seeking compensation stemming from the U.S.’solar and washer tariffs, according to rules of the World Trade Organisation (WTO).

Striking a grand bargain

• If Trump levies high tariffs on consumer electronics from China, U.S.consumers, retailers and companies involved in the targeted products’ supply chain will suffer. China’s demand for U.S.semiconductors and integrated circuits has remained strong in recent years,driven by its assembly and manufacturing operations for electronics products.

试验所用钼精矿100 g，氧气分压1.20 MPa，温度200 ℃，搅拌转速500 r/min，保温保压时间为300 min，考察固液质量比对制备样品影响。

• For example, the tariff on China’s solar panels is likely to cost 23,000 jobs in the U.S., especially among installers,as the rising cost of solar panels depresses demand, according to the Solar Energy Industries Association.

China’s response to the trade frictions is likely to be measured and focus on trade in goods and services.

Figure 3: Share of steel and aluminium products in U.S. imports, 2017

Source: CEIC, US Census Bureau , Standard Chartered Research

While trade frictions are expected to intensify, a trade war is quite unlikely in our view. Narrowing trade imbalances and creating jobs are the ultimate objectives of Trump’s foreign trade agenda.Waging a trade war would lead to retaliation and inefficient allocation of resources, causing output and job losses for all countries involved.If the U.S. imposes high tariffs on China’s products, it will have to either import from other countries at a higher cost, or produce those goods at home by directing resources away from industries in which it enjoys a competitive advantage. More importantly, in the context of a global supply and production chain, a trade war can cause collateral damage to all the producers involved, including U.S. firms.

• Higher steel and aluminium tariffs will help U.S. producers, but the benefits are likely to be offset by job losses in the steel and aluminium consuming industries, which collectively employ far more Americans than steel and aluminium producers combined.

• China will likely target U.S. agricultural products, vehicles and aircrafts(Figure 4). In 2017, China accounted for 55% of U.S. oil seeds exports (USD 12 bn), 20% of private-car exports (USD 11 bn), and 12% of aircraft exports (USD 16 bn). The U.S. would be in a vulnerable position as China can import from alternative sources.

• China may restrict U.S. access to China’s fast-growing service sector,which grew 8% in 2017 and comprised almost 52% of China’s GDP.The U.S. has had a service trade surplus with China in recent years, showing strength in transportation, travel and education, financial services, and intellectual property services. In 2016,3mn Chinese tourists visited the U.S.,spending USD 33 bn.

We do not think China will retaliate by selling USTs or devaluing its currency, at least not at the early stage of trade frictions. The authorities regularly review its reserve management policy. It is quite likely that as a result of such reviews, China changes the targeted share of USTs in the asset allocation, and gradually (and quietly)reshuffles its asset holdings. The role of USTs in reserve assets is irreplaceable in the foreseeable future, given its market size, liquidity and risk-adjusted returns. With China being the biggest foreign holder of USTs, a UST selloff would push UST yields higher and cause mark-to-market losses almost immediately. Devaluation is also a double-edged sword that could fuel capital outflows and disrupt internationalisation of the Renminbi (RMB).

In our base scenario, a grand bargain will be reached, with limited damage to bilateral trade. Trump may impose higher tariffs on China’s steel and aluminium to appease his supporters ahead of the midterm elections. China is likely to file WTO complaints while identifying agricultural products, vehicles and aircrafts as targets for retaliation.The trade frictions may intensify as Trump seeks remedies under Section 301, raising fears of a widespread trade war. However, this is very likely a tactic of the Trump administration to win the biggest possible concessions.

视觉法表面粗糙度检测技术可以实现在位检测，不仅可以显著提高工作效率，而且可以应用于加工过程中的加工表面质量监测，为智能加工提供有效手段。

The settlement of the 1994-95 Japan-U.S. auto trade dispute can provide some clues on how things may evolve under the Section 301 investigation.In October 1994, the Clinton administration initiated an investigation into Japan’s auto market under Section 301,and threatened to impose a 100% tariffon imports of luxury cars from Japan in May 1995. By end-June 1995, the U.S. and Japan reached a settlement over access to Japan’s auto market. The settlement averted the imposition of a punitive tariff. Japan also withdrew its complaints with the WTO against the unilateral sanctions. The U.S. gained increased access to the Japanese market for sales of American-made cars and parts. We think the U.S. and China can reach a similar agreement aimed at curbing bilateral imbalances.

• China will likely commit to increase imports from the U.S. (energy and agricultural products for example),and the U.S. may ease export restrictions on some high-tech products.

老田看做不通侯大同的工作，就转向汤翠，答应再额外偷偷补给汤翠他们十万元现金。汤翠当然没意见，可侯大同却是一副刀枪不入的样子，死活不答应。

• China may further open up the service sector, including education,medical services, entertainment and financial services. This is an area where China wants to upgrade to meet rising domestic demand and where the U.S.has a competitive advantage.

• China may address some of the concerns raised in the Section 301 investigation, such as administrative approval processes that pressure transfer of technologies and intellectual property to Chinese companies.

• China may also commit to continue purchasing U.S. Ts to help finance the enlarging U.S. budget deficit, and participate in investment to improve U.S.infrastructure.

With the trade surplus narrowing and services trade deficitexpanding, China’s current-account surplus dropped to merely 1.4% of GDP in 2017 from a peak of c.10%in 2007. Worsening trade relations with the U.S. could lead to slower-than-expected export growth.If the services trade deficit continues to follow the rising trend,the current-account surplus could be wiped out quickly (Figure 5).China has run a current-account surplus in the past 25 years. A shift to a deficit, for which the market is ill prepared, could fundamentally change how the market views the RMB and fuel RMB depreciation expectations.

Figure 4: US exports breakdown, 2017

Source: CEIC, US Census Bureau, Standard Chartered Research

Figure 5: China’s current-account surplus has narrowed% of GDP

Source: CEIC, SAFE, Standard Chartered Research