US-China trade dispute set to worsen: Fitch

By Ovunc Kutlu

NEW YORK

The ongoing and rising trade dispute between the U.S. and China will get worse, an official from global agency Fitch Ratings said Thursday.

"There is every reason to believe that the U.S.’ trade dispute with China will get worse before it gets better," said James McCormack, Managing Director and Global Head of the Sovereign and Supranational Group at Fitch.

"And...the U.S. trade deficit will widen further rather than shrinking," he said in an article he had written for the international media organization Project Syndicate which was published on its website.

Last month, the U.S. imposed 25 percent tariffs on $34 billion worth of Chinese goods and said Tuesday that an additional $16 billion will go into effect on Aug. 23.

Beijing announced last Friday that it plans to impose tariffs of up to 25 percent on $60 billion of U.S. goods and said Wednesday it will respond to Washington with $16 billion in retaliatory tariffs.

Now that China has already leveled the playing field by retaliating in kind, that leaves escalation -- a possibility that the Trump administration has already raised by threatening additional tariffs on all imports from China, McCormack said.

President Donald Trump told CNBC last month he is ready to impose additional tariffs on $500 billion in Chinese goods should Beijing retaliate.

The U.S. imported $505 billion worth of Chinese goods in 2017 while China imported $130 billion of American products, leaving Washington with a $375 billion trade deficit with the world's economy.

McCormack also said the U.S.' trade balance will "almost certainly for the foreseeable future" with a strengthening U.S. dollar and expansionary fiscal policies.

"With rising interest rates alongside strong growth, the dollar is likely to drift higher, adding to the headwind facing U.S. exports."