SINGAPORE (Mar 26): Investors have been anticipating a trade war following the Trump’s administration’s plan to impose up to US$60 billion ($78.9 billion) worth of tariffs on China imports, which accounts for about 9.4% of US-China trade and 2.6% of US total imports.

See: Brace yourselves. A full-blown trade war may be on the way

The items covered would include IT, consumer electronics, telecoms, and possibly, even apparel.

This may just be the tip of the iceberg, as Maybank Kim Eng analyst Chua Hak Bin believes that other measures will follow on investments and intellectual property theft.

“Our base case is that some compromise will be reached in the coming months, preventing a full-blown trade war,” says Chua.

See: Is this the end of the Goldilocks period?

On the other hand, China’s response was calibrated and measured, with plans for tariffs with US$3 billion on 128 US products and more than 90% are agricultural products, targeted at Trump’s rural supporters.

This US$3 billion only amounts to 0.2% of China’s total imports and 2% of imports from US. China’s response signals that it does not want the trade spat to escalate, avoiding more substantial targets, including soybean, cars and aircrafts.

Hence, the US may impose a “reciprocal tax” on China, matching China’s tariffs accordingly.

Tariffs that are glaringly high in China include imports of motorcycles (45%), cars (25%), cereals (24%), beverages (23%), footwear (19%) and clothing (16%). Hence, Chua believes that China may cut tariff rates more quickly on these items as a compromise.

“A bilateral US-China trade war will lead to significant trade diversion and substitution, benefiting third countries exporting to China or the US for the targeted items,” says Chua.

Demand for US cars could shift to Japan and Germany, while China’s pork demand will shift to Germany and Spain, the two largest suppliers before the US.

Meanwhile, Asean countries may not see a significant impact because of demand diversion from both US and China, unless this turns out into a global trade war.

In addition, this trade war may also turn into a tech war, with the US officials accusing China of intellectual property theft worth about $600 billion per annum.

This may cause the US to restrict China investments in “critical” technology, such as artificial intelligence (AI), autonomous vehicles, augmented/virtual reality (VR), robotics and fintech. Trump has also planned to restrict China researchers, students and travel to the US.

The US may also challenge China’s trade practices at the World Trade Organisation (WTO).

In response, Premier Li signalled that China was willing to take action to strictly protect intellectual property rights and open up the manufacturing & services sector, which includes aged care, education and financial services.