EU could win big in trade war

(R-L) Commerce Secretary Wilbur Ross, US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, Director of the National Economic Council Larry Kudlow and other Trump Administration officials sit down with Chinese vice ministers and senior officials for negotiations in the Diplomatic Room at the Eisenhower Executive Office Building 30 January, 2019 in Washington, DC. (Chip Somodevilla / Getty Images / AFP Photo)

Neither protagonist in the US-China trade war stands to benefit from their stand-off, the United Nations (UN) said Monday, suggesting others could cash in instead, with the European Union (EU) possibly winning big.

In a report, the UN Conference on Trade and Development (UNCTAD) examined the repercussions of the tariff tit-for-tat already under way between the two trade giants, as well as the expected impact of a significant tariff hike scheduled to take effect on 1 March.

The report, titled "The Trade Wars: The Pain and the Gain", said that "bilateral tariffs alter global competitiveness to the advantage of firms operating in countries not directly affected by them".

It predicted that the EU would be the biggest winner, taking home some US$70 billion in additional trade thanks to the trade war.

Last year, Washington and Beijing imposed tariffs on more than US$360 billion in two-way trade, after Trump initiated the trade war because of complaints over unfair trade practices.

The two countries hailed "progress" in talks held in Washington last week aimed at avoiding an escalation of the conflict.

But if no deal is reached by 1 March, US duty rates on US$200 billion in Chinese goods are due to rise to 25 percent from 10 percent.


"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," Pamela Coke-Hamilton, head of UNCTAD's international trade division, said in a statement.

"The effect of US-China tariffs would be mainly distortionary. US-China bilateral trade will decline and replaced by trade originating in other countries," she said.

The study estimated that out of the US$250 billion in Chinese exports subject to US tariffs, some 80 percent would be captured by firms in other countries, while 12 percent would be retained by Chinese firms and only six percent would be captured by US firms.

A similar scenario would apply to the US$85 billion in US exports hit by Chinese tariffs, the report said, estimating that 85 percent would go to companies in other countries, 10 percent would remain in the US and only about five percent would go to Chinese firms.

"Countries that are expected to benefit the most from US-China tensions are those which are more competitive and have the economic capacity to replace US and Chinese firms," UNCTAD said.

The report indicated that the EU stood to benefit the most, with companies in the bloc likely to capture around US$50 billion of Chinese exports to the US and about US$20 billion of US exports to China.

Japan, Mexico and Canada would meanwhile each capture more than US$20 billion in additional trade thanks to the tariff war, the study found.

Australia, Brazil, India, the Philippines, and Pakistan would also notice "substantial effects relative to the size of their exports," it said.

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

The UNCTAD study pointed to the soybean market, where the tit-for-tat tariffs have resulted in "trade distortionary effects" that have benefitted Brazil especially, since the country has suddenly become the main soybean supplier to China.

Negative global effects

"But because the magnitude and duration of tariffs is unclear, Brazilian producers have been reluctant to make investment decisions that may turn out to be unprofitable if the tariffs are revoked," the UN agency said.

Brazilian companies that purchase soybeans, meanwhile, stand to lose out amid inevitable price hikes, it added.

The study also said that the positive effect for some countries will likely be outweighed by the negative global effects.

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

This is especially worrying if trade tensions spiral into currency wars, which would threaten the ability of people and companies around the world to pay off US dollar-denominated debt, they said. - AFP