The Trade Wars: The Pain and the Gain

Geneva – Neither protagonist in the U.S.-China trade war stands to benefit from their standoff, the U.N. said Monday, suggesting others could cash in instead, with the EU possibly winning big.

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

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

It predicts that the European Union will be the biggest winner, taking home some $70 billion in additional trade thanks to the trade war.

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

Last year, Washington and Beijing imposed tariffs on more than $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 in Washington last week aimed at avoiding an escalation of the conflict.

But if no deal is reached by March 1, U.S. duty rates on $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 U.S.-China tariffs would be mainly distortionary. U.S.-China bilateral trade will decline and (be) replaced by trade originating in other countries,” she said.

The study estimates that out of the $250 billion in Chinese exports subject to U.S. tariffs, some 80 percent would be captured by firms in other countries, while 12 percent would be retained by Chinese firms and only 6 percent would be captured by U.S. firms.

A similar scenario would apply to the $85 billion in U.S. exports hit by Chinese tariffs, the report says, estimating that 85 percent would go to companies in other countries, 10 percent would remain in the U.S. and only about 5 percent would go to Chinese firms.

“Countries that are expected to benefit themost from U.S.-China tensions are those which are more competitive and have the economic capacity to replace U.S. and Chinese firms,” UNCTAD said.

The report indicates that the EU stands to benefit the most, with companies in the bloc likely to capture around $50 billion of Chinese exports to the U.S. and about $20 billion of U.S. exports to China.

Australia, Brazil, India, the Philippines and Pakistan will also notice “substantial effects relative to the size of their exports,” it says.

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

The UNCTAD study points to the soybean market, where the tit-for-tat tariffs have resulted in “trade distortionary effects” that have benefited Brazil in particular, since the country has suddenly become the main soybean supplier to China.

“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 U.N. agency said.

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

The study also says the positive effects 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 dollar-denominated debt, they said. (Japan Times)