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The consumer price index (CPI) grew 2.1 per cent in May from a year earlier, flat from April, though still at a six-month high, which reflected rising prices for crude oil, farm produce and material imports.

In comparison, inflation hit at a four-decade high of 8.6 per cent in the US and 8.1 per cent in the Eurozone last month. It surged to 9 per cent in Britain in April.

China’s core CPI, which excludes the volatile prices of food and energy, rose by 0.9 per cent year on year last month, unchanged from April. Headline inflation for the first five months grew by 1.5 per cent, comfortably below the government’s full-year maximum of 3 per cent.
The producer price index (PPI), which measures the prices for products as they leave factories, rose by 6.4 per cent in May, down from a peak of 13.5 per cent in October 2021.

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Due to trade wars, there is proctentist policies towards exports and imports of raw materials. Basic materials for production such as steel, computer chips mainly come from certain regions, such as America as they own these illectual properties. US-China trade war has resulted in America banning and dereasing exports of computer chips to china, affecting production of mobile and computer devices. Decreased exports of computer chips affects the assembly process and forces companies to move back to the US for production, decreasing China's output and stunting their growth. Decreased output of computer chips also cause companies to be unable to produce sufficient mobile devices, for example Huawei, leading to them having less market share, and eventiually loss of business

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From Financial Times (https://www.ft.com/brandsuite/cme-group/trade-war-costs-consumers-companies-nations/index.html): 'Import tariffs are essentially a sales tax and raise costs for consumers. The question is by how much? The simplest assumption is that consumers will bear 100% of the cost of the increased tariffs. For example, if the U.S. has a $20 trillion GDP and the government imposes a 10% tariff on $200 billion worth of imported goods, then U.S. consumers would see the average price level rise by 0.1% (10% X $200 billion / $20 trillion).

The good news for consumers is that this calculation ignores the notion that some of the impact on consumer prices will likely be absorbed in the form of lower corporate profits – both in the United States and China. Additionally, the trade war negatively impacts China’s renminbi (RMB) and through it many emerging market currencies (Figure 2).

Weaker emerging market currencies translate to lower import costs for U.S. consumers, offsetting a portion of the tariff impact. As such, we assume that roughly half of the consumer impact from higher tariffs will be absorbed elsewhere.'

See also https://edition.cnn.com/2022/05/18/business/janet-yellen-g7-comments/index.html

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AT A GLANCE

U.S.-China trade war could trim company profit margins in both nations

Tariff impact on U.S. companies will be modest relative to corporate profits

The level of U.S. tariffs on Chinese products and the number of goods they cover are constantly changing as the trade dispute between the world's two largest economies escalate. To help investors evaluate the possible macroeconomic impact from the trade war, we put together a back-of-the-envelope economic analysis (Figure 1). Like any similar approach, it contains many simplifying assumptions and will not fully capture the complex reality of the dispute's economic impact, but it will provide a framework for evaluating the effects on inflation, corporate profits, Federal revenues and Chinese GDP. As is the case with monetary and fiscal policies and currency movements etc., there are many second and third order possibilities to consider.

Let's break down the assumptions into their four categories:

Import tariffs are essentially a sales tax and raise costs for consumers. The question is by how much? The simplest assumption is that consumers will bear 100% of the cost of the increased tariffs. For example, if the U.S. has a $20 trillion GDP and the government imposes a 10% tariff on $200 billion worth of imported goods, then U.S. consumers would see the average price level rise by 0.1% (10% X $200 billion / $20 trillion).

The good news for consumers is that this calculation ignores the notion that some of the impact on consumer prices will likely be absorbed in the form of lower corporate profits - both in the United States and China. Additionally, the trade war negatively impacts China's renminbi (RMB) and through it many emerging market currencies (Figure 2).

Weaker emerging market currencies translate to lower import costs for U.S. consumers, offsetting a portion of the tariff impact. As such, we assume that roughly half of the consumer impact from higher tariffs will be absorbed elsewhere.

If 100% of the impact of the trade dispute came out of corporate profits, a 10% tariff on $200 billion worth of goods would lower U.S. corporate profits by the equivalent of 0.05% of GDP. Since corporate after-tax profits are around 9% of GDP, that would mean that corporate profits would fall by around 0.5% or 0.6%. If the tariff goes to 25%, then U.S. corporate profits could fall by 1.25-1.5%, if the impacts of the trade dispute were fully absorbed by lower profit margins. However, some of the costs are likely to be passed along to consumers.

Moreover, some of the negative impact of the trade war will also be buffered by Chinese enterprises, which may offset some of the tariff impact by lowering their own profits margins. Finally, if the value of the Chinese currency falls (and it already has) and drags other currencies lower, this could also hurt U.S. corporate profits. As such, we estimate that about half of the cost of the tariffs will in one way or another be borne by U.S. corporations by way of lower profit margins.

Compared to the size of corporate profits, the tariff impact is relatively modest, which may explain why U.S. equities aren't too troubled by it. It may also explain why the tech heavy NASDAQ and the small cap Russell 2000 have outperformed the multinationals-dominated Dow Jones Industrials Average and the S&P 500®. Many of the big U.S. tech firms that dominate the NASDAQ 100 (Google, Amazon, etc.) have limited access to Chinese markets and are relatively unaffected by China's retaliatory measures. Likewise, many U.S. small caps focus on the domestic market and their supply lines are not likely to be negatively impacted like those of the bigger firms that dominate the Dow and S&P.

Trade disputes aren't all bad news. Following the tax cuts and spending increases, the Federal deficit ballooned from 2.2% of GDP in 2016 to over 4% this year and could hit 5.0-6.0% in 2019. Tariffs are a tax and imposing tariffs raises revenue for the Federal government.

Some of the revenue raised directly from tariffs could be offset, however, by lower tax collections from corporate taxes to the extent that the trade dispute lowers corporate profits. Also, if the trade war slows job creation or wage growth, it could lower personal income and payroll tax collections. By our estimate, a 10% tax on $200 billion worth of Chinese goods will bring in about 0.1% of GDP worth of tax revenue. A 25% tax will bring in around 0.2%. These revenues will reduce the Federal budget deficit very slightly, but they won't be nearly enough to halt the rapid growth in Federal deficits.

Valued at current exchange rates, China has a $12 trillion economy. A 10% U.S. tariff on $200 billion worth of Chinese goods will probably erase about 0.1-0.2% from GDP. A 25% tariff could widen that to 0.3-0.4% of GDP, all else being equal. The good news for China is that all else isn't equal. China can counter some of the negative impact by allowing its currency to fall and the RMB is already down by about 9% since mid-April. Moreover, China has other tools at its disposal, including monetary and fiscal stimulus. A tax cut will go into effect in September and the People's Bank of China (PBoC) has already reduced its reserve requirement ratio twice in the past four months. As such, some of the negative GDP impact can be partially offset, at least in the short run.

"All else equal," doesn't necessarily work out in China's favor, however. China has high debt levels and slower growth could make it more difficult to deleverage its economy. Moreover, high levels of leverage could foster a negative spiral where slower growth leads to business failures and defaults which, in turn, lead to even slower growth and more failures and defaults. The Chinese government and the PBoC have the ammunition to prevent such a spiral from occurring in the short term, but by easing fiscal and monetary policy they risk increasing public and private sector debt. As such, if the trade war chickens don't come home to roost now, they might later and in greater numbers.

Our set of back-of-the-envelope calculations also does not account for China's response to the U.S. tariffs. Any retaliatory measures will likely boost consumer prices in China, lower profit margins and GDP growth on both sides of the Pacific and raise a small amount of revenue for the Chinese government, whose public debt is growing. Once again, our back-of-the-envelope model is not intended to make a precise economic forecast. We also don't consider the possible impact on U.S. monetary policy, which could become either tighter or looser in response to the trade dispute than it might otherwise be. Rather, it is our hope that the calculations below will provide a useful framework for considering possible economic implications of the trade dispute on the U.S. and Chinese economies, both of which are extremely complex.

One last point: we also calculate the impact of applying tariffs on all Chinese goods coming into the U.S. which total about $500 billion - so $300 billion in addition to the $200 billion already likely subject to tariffs.
Figure 1: Possible Economic Impact Under Three Scenarios (Tariffs on $34B, $200B & $500B of Goods)
Under a worst-case scenario that a 25% tariff is applied to all Chinese goods, one could see a 0.3% rise in U.S. CPI, a similar fall in corporate profits as a percentage of GDP (so about a 3.3% drop in overall corporate profits) and a 0.8% hit to Chinese GDP. On the other hand, if one sticks to the Administration's original proposal of 10% tariffs on $34 billion of goods, then the impact of the trade dispute is negligible.

Figure 2: Both the Renminbi and Other Emerging Currencies are Falling
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
Erik Norland is a Senior Economist at CME Group

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Trade war costs to consumers, companies and nations

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U.S.-China trade war could trim company profit margins in both nations Tariff impact on U.S. companies will be modest relative to corporate profits The level of U.S. tariffs on Chinese products and the number of goods they cover are constantly changing as the trade dispute between the world's two largest economies escalate.

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Singapore core inflation approaching 2 percent in 2018, is already 2.30% in 2021. Singapore has a lot of bilateral ties with both China and US, while the tariffs don't directly impact Singapore, raw materials used in production of goods in US in China become more expensive, so this also increases the price of consumer goods exported to Singapore

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See https://www.niesr.ac.uk/wp-content/uploads/2021/10/Box-The-effects-of-the-trade-war-on-inflation-4.pdf

Conclusion from simulation: 'Figure A1 shows that the consumer price inflation rate both in the US and China would increase by about 0.2 percentage points
relative to the baseline projection over three years following a 15 per cent increase in tariffs, a result consistent with previous
work (Liadze, 2018a).'

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A trade war leads to higher input prices & thus higher costs of production for firms, which shifts the AS curve down; keeping AD constant this results in a higher GPL (inflation)

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Effects of the Trade Deficit
U.S. companies that can't compete with cheaper Chinese goods must find ways to cut costs to stay competitive. As a result, U.S. manufacturing (measured by the number of jobs) declined by 35% between 1998 and 2010, before rebounding by about 7% through the end of 2020. Overall, manufacturing jobs in the United States have declined by about 30% since 1998.

Trade imbalances become an issue when there isn't a relatively equal amount of trade between trading partners. For example, the U.S. feels that China isn't living up to its trade obligations, and thus that actions need to be taken. These usually result in trade embargoes or tariffs that can raise the costs of imports for the offending nation.

The U.S. economy is affected by the trade deficit. Jobs and capital are moved offshore, causing financial difficulties for consumers and smaller businesses. The tariffs imposed by the administration have been paid by U.S. companies, for the most part, further costing them $46 billion after losing over $1.7 trillion in stock values.9﻿

China is also one of the leading holders of U.S. Treasuries, which it purchases to reduce the value of its currency, thus allowing it to maintain a low exchange rate with the dollar. U.S. consumers benefit from low prices, and the government and economy benefit from capital being invested into the country.

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Inflation occurs when the same sum of money is able to buy less goods, and hence a country's currency becomes worth less.
Inflation shot up by an estimated 8.5 per cent annualised rate in March 2022 in the US, this is due to the tariffs on goods from China being 6 times higher than before 2018 (before the trade war).

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Amount by which the cost of a country's imports exceeds the value of its exports.

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The study estimates that U.S. exports to China support 1.2 million American jobs and that Chinese multinational companies directly employ 197,000 Americans, while U.S. companies invested $105 billion in China in 2019.

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A study by Oxford Economics included an “escalation scenario” which estimates a significant decoupling of the world’s two largest economies could shrink U.S. GDP by $1.6 trillion over the next five years. This could result in 732,000 fewer U.S. jobs in 2022 and 320,000 fewer jobs by 2025, it said.

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U.S. goods and services trade with China totaled an estimated $615.2 billion in 2020. Exports were $164.9 billion; imports were $450.4 billion. The U.S. goods and services trade deficit with China was $285.5 billion in 2020.
China is currently our largest goods trading partner with $559.2 billion in total (two way) goods trade during 2020. Goods exports totaled $124.5 billion; goods imports totaled $434.7 billion. The U.S. goods trade deficit with China was $310.3 billion in 2020.

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U.S. President Donald Trump’s trade war with China has caused a peak loss of 245,000 U.S. jobs, but a gradual scaling back of tariffs on both sides would boost growth and lead to an additional 145,000 jobs by 2025, a study commissioned by the U.S.-China Business Council (USCBC) shows.