Speaking in a recent insight, AMP Capital chief economist Shane Oliver said there is a risk associated with the trade conflict between the US and China. Further, it’s possible the conflict could “get worse before it gets better”.

“There is continued talk of escalation and retaliation, more tariffs on China potentially, and talk of tariffs on auto imports particularly from Europe. So, these things could escalate, and this issue could go further; it’s gone a lot further than I would have thought,” Mr Oliver said.

He said the “trade war issue” will likely persist and possibly escalate.

“The concern about global trade remains. We have seen some tariffs put in place, particularly in relation to steel and aluminium going into the US, and a bit of retaliation going on there,” Mr Oliver said.

“And likewise, some of the threatened tariffs have been put in place on Chinese imports going into the US, which is of course where the key conflict is at present.”

Trade war timeline:

March 2018: US President Donald Trump imposes a 25 per cent tariff on steel imports and a 10 per cent tariff on aluminium imports with only Canada and Mexico exempt. In following days Australia also receives an exemption. The Chinese Ministry of Commerce considers this a "serious attack".

The US President also proposes a 25 per cent tariff on $US50 billion of US imports from China.

China retaliates by announcing plans for 25 per cent tariffs on $US50 billion of US imports.

 

April 2018: Mr Trump proposes another suite of tariffs on another US$100 billion of Chinese imports, triggering a fall of 2.3 per cent on the Dow Jones the following day.

 

May 2018: An agreement is reached between the US and China, in which China agreed it would import more from the US and address intellectual property theft.

However, after a brief period of triumph, Mr Trump announces the 25 per cent tariff on the $US50 billion of Chinese imports will be locked-in by 15 June, with a 6 July start date for $US34 billion.

China backs out of the deal, and the US responds by doubling the $US100 billion to a 10 per cent tariff on $US200 billion of imports. Mr Trump also threatens an additional $US200 billion would be subjected to tariffs in China chose to retaliate.

 

July 2018: The US and China both begin their respective tariffs on $34 billion of imports. 

 

+ Two weeks: Both the US and China are set to begin the respective tariffs on the remaining $16 billion of imports. The Chinese action depends on US actions. 

 

Potential: The US begins the additional $200 billion of tariffs. 

Despite the escalation, Mr Oliver said investors should keep a steady nerve, noting the total amount of imports subjected to the US tariffs come to about 3 per cent of total imports.

Arguing this is a “relatively modest impost”, Mr Oliver said investors should also feel comforted by history.

“This is not the 1930s where all goods coming into the US were subject to a 20 per cent tariff starting in 1930 – that was the so-called Smoot-Hawley tariffs that helped make the Great Depression ‘great’. We’re not at that point yet.”

Tariffs will eventually impact US consumers, and with it, pressure for a solution.

“As more and more tariffs are imposed, particularly on goods coming from China and potentially on car imports, that’s going to put up prices for American consumers, many of whom vote for Donald Trump. That’s not going to be good news going into the mid-term elections,” Mr Oliver said.

“Ultimately, we believe there will be some form of negotiated solution. But the issue could get worse before it gets better. That means more volatility in the short term in investment markets around the issue of a trade war threat.”