DEUTSCHE BANK: The risk of a full-blown trade war between the US and China is rising

Container ship container boxesAP Photo/New Zealand Herald, Alan Gibson

LONDON – The risk of a serious trade war between the world’s two largest economies has sharply increased, according to analysts at Deutsche Bank

And it may be down to a product known as distillers’ dried grains, an ingredient in animal feed.

Last week China increased anti-dumping tariffs on US imports of the grains from 33.8% to as much as 53.7%.

The country also hiked anti-subsidy penalties from 10% to as much as 12%, according to a Reuters report.

A Chinese court said the domestic grain industry had “suffered substantial harm” due to subsidized imports from America.

While distillers’ dried grains don’t tend to grab headlines, it’s bad news for US producers. In 2015 China imported $2 billion of the grains, which are a profitable by-product of the US corn-ethanol industry.

“Given China accounts for over 50% of US DDGs exports, the newly announced actions will likely be a hard hit on the corn-ethanol industry in the US,” Deutsche Bank analysts Zwiwei Zhang and Li Zeng said in a note to clients.

And, with tensions rising between China and the US following remarks from the incoming Donald Trump administration on trade, Taiwan and the South China Sea, the spat could quickly escalate and hit other American exports.

“The other potential retaliation targets by China include: aircraft industry, seeds and fruits, pulp, wood products, leather products, and cotton,” the analysts said.

“Is this step by China a prelude to a full-fledged US-China trade war? We still view large-scale US-China trade war as a risk scenario. Nonetheless, there are indications that the chance of such risk materializing is on the rise,” said Deutsche Bank.

Here’s the chart of how those other trade sectors stack up between the two countries:

trade1Deutsche Bank

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