The trade war between China and the United States doesn’t seem to be waning, which might be good news for other countries.
A new study by the United Nations Conference on Trade and Development was recently released which looked at the repercussions of tariff increases by the United States and China. It also showed how the trade war benefits the European Union and other nations. The study underlined that “bilateral tariffs don’t help small domestic firms in their markets.”
“Our analysis shows that while bilateral tariffs are not very effective in protecting domestic firms, they are very valid instruments to limit trade from the targeted country. The effect of US-China tariffs would be mainly distortionary. US-China bilateral trade will decline and replaced by trade originating in other countries,” said Pamela Coke-Hamilton, who heads UNCTAD’s international trade division, as she launched the Key Statistics and Trends in Trade Policy 2018.
The study estimated that of the $250 billion in Chinese exports that are subjected to U.S. tariffs, about 82% will be captured by other countries, while 12% will be kept within China and 6% within the U.S. On the flip side, the $85 billion in tariffs levied on U.S. goods by China, 85% will be captured by other countries with 10% being captured by American companies and 5% by Chinese firms.
“The reason is simple: bilateral tariffs alter global competitiveness to the advantage of firms operating in countries not directly affected by them. This will be reflected in import and export patterns around the globe,” stated the report.
So, who will take advantage of the trade war between these two goliaths? According to the study, the European Union is poised to take a large chunk. The study indicates the EU will capture about $70 billion of the U.S.-China bilateral trade ($50 billion of Chinese exports to the United States, and $20 billion of U.S. exports to China). Following closely behind the EU are Japan, Mexico, and Canada.
“Although these figures don’t represent a large slice of global trade – which was worth about $17 trillion in 2017 – for many countries they make up a substantial share of exports,” read the report.
“For example, the approximately $27 billion of US-China trade that would be captured by Mexico represents a non-negligible share of Mexico’s total exports (about 6%). Substantial effects relative to the size of their exports are also expected for Australia, Brazil, India, Philippines, Pakistan and Viet Nam.”
The downside to all this is that while some countries see a surge in their exports, negative global impacts are still possible.
“An economic downturn often accompanies disturbances in commodity prices, financial markets and currencies, all which will have important repercussions for developing countries. One major concern is the risk that trade tensions could spiral into currency wars, making dollar-denominated debt more difficult to service,” read the report.
Another consequence of the trade war is that it could cause an increase in protectionism around the world.