Trade Wars: The Pain and the Gain

Daniel Fowler
February 6, 2019

The impact on total US imports from China in 2018 was "muted", the researchers wrote, largely because of the rush to get ahead of tariffs that it caused on the larger $200 billion list. US firms are only expected to pick up about 6% of the value of tariffed Chinese exports, while Chinese firms will pick up 5% of the value of tariffed USA exports.

Countries that are expected to benefit the most from the trade war are European Union members; the United Nations study indicates that exports in the bloc are likely to grow by $70 billion.

Last year, the USA levied tariffs of between 10% and 25% on $250bn worth of Chinese goods.

"We are now making it clear to China that after years of targeting our industries and stealing our intellectual property, the theft of American jobs and wealth has come to an end", Trump said, noting his "great respect" for Chinese President Xi Jinping.

But the gains for some countries could be undermined by other aspects of the trade war, which has contributed to an economic slowdown in China and triggered volatility in global markets.

The trade war will also have a number of negative effects on global trade, especially within certain markets, the UNCTAD said.

USA companies would capture only 6 percent of the $250 billion of the affected Chinese exports, while Chinese firms would retain 12 percent, despite the higher cost of trade, the study said.

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"There'll be currency wars and devaluation, stagflation leading to job losses and higher unemployment and more importantly, the possibility of a contagion effect, or what we call a reactionary effect, leading to a cascade of other trade distortionary measures", Ms Coke-Hamilton said.

The US has threatened to hike tariffs on Chinese goods from 10% to 25% if the US and Chinese governments do not reach a deal before the 2 of March.

The study estimates that of the $250 billion in Chinese exports subject to United States tariffs, about 82% will be captured by firms in other countries, about 12% will be retained by Chinese firms, and only about 6% will be captured by USA firms. Mexico, Japan and Canada could all add more than $20 billion of new exports. US-China Trade War "Most Stupid Thing Ever", Says Alibaba Chief Jack Ma.

A major concern, the report authors said, is the impact the trade dispute will have on a still-fragile global economy.

"One major concern is the risk that trade tensions could spiral into currency wars, making dollar-denominated debt more hard to service", the report adds.

For example, the high volume of Chinese exports affected by USA tariffs is likely to hit East Asian value chains the hardest, with UNCTAD estimating that they could contract by about $160 billion.

The new round of talks in Beijing, to be led by US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, was earlier reported by the Wall Street Journal, citing an unidentified senior administration official. Tariffs on American soybeans prompted Chinese importers to switch to Brazilian suppliers a year ago.

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