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The United Nations organisation estimated that European companies are likely to capture about US$70 billion in trade – about US$50 billion in Chinese exports and US$20 billion in US exports – that have traditionally passed between the world’s two largest economies. Photo: Reuters

European Union likely to profit the most from US-China trade war, UN group says

  • European companies likely to capture US$70 billion in trade because of the dispute between President Xi Jinping and American counterpart Donald Trump
  • Japan, Mexico and Canada also likely to benefit from tensions, according to the United Nations Conference on Trade and Development (UNCTAD)

The European Union is set to be the biggest winner of the trade war that has raged between the United States and China since last year, according to a new study by the United Nations Conference on Trade and Development.

The United Nations organisation estimated that European companies are likely to capture about US$70 billion in trade – about US$50 billion in Chinese exports and US$20 billion in US exports – that have traditionally passed between the world’s two largest economies.

Countries that are likely to benefit the most from trade tensions are those which are more competitive and have the economic capacity to replace US and Chinese firms, the United Nations Conference on Trade and Development (UNCTAD) said.

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“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,” said Pamela Coke-Hamilton, the heads of UNCTAD’s international trade division.

“The effect of US-China tariffs would be mainly distortionary. US-China bilateral trade will decline and replaced by trade originating in other countries.”

Japan, Mexico and Canada also are each likely to capture more than US$20 billion in trade, UNCTAD said.

Despite some countries seeing an increase in exports, the UN organisation said that the results of the trade dispute will not be positive in all cases.

The group noted that Brazil has managed to take advantage of the dispute to become the main supplier of soybeans to China, but Brazilian producers are reluctant to make investment decisions because “the magnitude and duration of tariffs is unclear”.

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“A common concern is the unavoidable impact that trade disputes will have on the still fragile global economy,” UNCTAD said.

“An economic downturn often accompanies disturbances in commodity prices, financial markets and currencies, all which will have important repercussions for developing countries.”

US President Donald Trump has placed tariffs on nearly half of all goods that are imported from China as he tries to force Beijing to change what he says are unfair trade practices, including the forced sharing of technology.

China has responded in kind with its own tariffs in a tit-for-tat escalation that played out during the second half of last year.

UNCTAD estimated that of 82 per cent of the US$250 billion in Chinese goods currently subject to US tariffs would be captured by companies in countries outside the US or China.

Of the US$85 billion in US goods subject to Chinese tariffs, 85 per cent would be captured by other countries, the UN organisation said.

As China and US talk trade, EU wonders if peace is bad for business

As the trade war has waged, China’s economy has experienced its weakest expansion since 1990, with the gross domestic product growth rate slowing to 6.6 per cent in 2018.

However, China’s vice-president Wang Qishan argued at the World Economic Forum in Davos, Switzerland, last month that the growth rate was “not low at all”.

“If you compare the 6.6 per cent with China’s historical data, it is certainly low, but if you compare to the rest of the world, it is still a relatively high speed. Slowing down the speed and enhancing the quality will be China’s long-term strategy,” said Chen Dafei, senior financial analyst at Orient Securities, a Chinese investment bank and brokerage firm headquartered in Shanghai.

There has been rising optimism lately that the two countries can reach a trade agreement ahead of a US-imposed deadline in March. If not, Washington has threatened to increase tariffs on some US$200 billion of Chinese goods from 10 per cent to 25 per cent.

However, UNCTAD said that there are concerns that the trade tensions between the US and China could further escalate and draw more countries into the fray, with protectionist policies escalating to a global level.

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“In an interconnected global economy, the tit-for-tat moves of the trade giants are likely to have a domino effect beyond the countries and sectors targeted,” UNCTAD said. “Tariff increases penalise not only the assembler of a product, but also suppliers along the chain.”

UNCTAD said that the high volume of Chinese exports subject to US tariffs could hit supply chains in East Asia the hardest, causing them to contract by an estimated US$160 billion.

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Robert Zoellick, the former US trade chief and ex-World Bank president, said that tariffs have inflicted a fair bit of self harm on the US.

“We could have brought China to the table in a way that would have brought more countries with us, and which would have gained more support from within China than if we hadn’t taken to it with the club of tariffs,” Zoellick said in a recent interview in Hong Kong.

“You have to ask what the tariffs do to your own economy. The US$200 billion of tariffs are primarily focused on intermediate industries. Fifty to sixty per cent of US imports are goods that help build other products, so if you want to be less competitive, raise your costs.”

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