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Drum rates on China probably damaged the US economy; Fed set to hold: Nomura




A freight container is unloaded at Oakland Port in Oakland, California.

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Raising tariffs on all Chinese merchandise coming into US borders is likely to damage US economic growth, which has already shown signs of slowing in recent months, according to Japanese finance company Nomura.

President Donald Trump has argued several times that the United States has collected billions of dollars in tariffs paid by the Chinese, which in part contributed to the strong US economy. Economics says that it really isn't how the tariffs work, and Nomura's chief American economist, Lewis Alexander, said on Tuesday that the net competition of the trade battle is likely to be negative for America.

Tensions between the US and China escalated earlier this month, when Trump announced an increase in tariffs of $ 200 billion of Chinese goods from 1[ads1]0% to 25%. He also threatened to apply 25% tariffs on remaining imports from China worth around $ 300 billion.

Beijing retaliated by raising fees of $ 60 billion US products.

Alexander said there are signs that tariffs collected by the US government are being paid by US firms and consumers, rather than the Chinese. "And honestly, it's likely to be a move on US growth instead of neutral," he told CNBC at Nomura Investment Forum Asia in Singapore.

The governments collect import tariffs from companies that take in the goods, so Trump's Tariffs on Chinese goods are usually paid by US importers. That said, the cost of these charges can be transferred to everyone from the original Chinese manufacturer to a US-based consumer.

The exact cost allocation of the current commercial war remains unclear, but research published by the New York Federal Reserve Bank estimated that US rates on China will cost the typical US household $ 831 per year.

The continuing US-China tariff struggle – the world's two largest economies – comes at a time when the US economy "clearly brakes, Sa Alexander. He added that" the biggest thing "that will affect US economic growth and Federal decisions Reserve is how trade development affects business understanding and investment in the coming months.

Fed to keep going

Nevertheless, the potential hit of the US economy does not justify a price cut by the Fed, according to Alexander. continues to impose 25% tariffs on all Chinese merchandise, the core inflation in America could cross by 0.5 percentage points over the next 12 months

Central banks globally reduce interest rates to stimulate economic activity and stoke inflation. while inflation is rising, an economy is in danger of overheating, which is often a precursor to a

Alexander is not the only one who expects the Fed to keep interest rates stable. Carmen Reinhart, professor at the Harvard Kennedy School, also said that the US central bank has the right to remain patient in making any interest payments.

"We cannot lose sight of the fact that US unemployment is the lowest since the 60s, the economy – with some metrics – still approaching full employment," Reinhart told CNBC on Tuesday at the Nomura forum.

"The Fed's wait and see attitude is really on the ground," she added.

Watch: How do the tariffs work?



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