US-China trade war prompts major shifts in goods flows

Date: Monday, June 10, 2019
Source: Lloyd's List

Of the $250 billion in Chinese exports subject so far to US tariffs, more than 80% will be captured by firms in other countries, with the EU set to make the biggest gains, study estimates

The US-China trade war is prompting major shifts in goods flows, impacting all modes of transport, according to a number of new studies into the impact of trade tariffs.

As reported in Lloyd’s Loading List, Europe has multiple opportunities to benefit from the conflict even as it suffers from lower growth forecasts, not least by negotiating better trade arrangements and economic access with China.

And, according to the United Nations Conference on Trade and Development (UNCTAD), more than 80% of the trade hit by US and Chinese tariffs will be picked up by other countries – with the EU set to make the biggest gains.

The study estimates that of the $250 billion in Chinese exports subject so far to US 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 US firms. Similarly, of the approximately $85 billion in US exports subject to China’s tariffs, about 85% will be captured by firms in other countries.

“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,” said the report.

European Union exports are forecast to increase the most, capturing about $70 billion of US-China bilateral trade - $50 billion of Chinese exports to the United States, and $20 billion of US exports to China. Japan, Mexico and Canada will each capture more than $20 billion.

The UNCTAD findings are partially supported by a report from Nomura released last week, although it expects countries in Asia to be the biggest beneficiaries of product or sourcing substitution.

“The escalating trade war between the world’s two largest economies is no doubt negative for the world economy, but one aspect can be positive: the US and China diverting imports away from each other to other countries can benefit some industries in those economies,” it said.

Armed with a full year’s worth of trade data, it found strong evidence of US and China import substitution in over half of the 1,981 tariffed products, trends that are hugely altering trade flows.

“Vietnam is by far the largest beneficiary, followed by Taiwan, Chile, Malaysia and Argentina,” said the report. “Asia (ex-China) has gained most from US import substitution, while Americas (ex-US) has benefitted most from China import substitution.”

US import substitution has benefitted Vietnam, Taiwan and Korea in electronics products; Malaysia in semiconductors; and Korea and Mexico in motor vehicle parts.  

Nomura is not as bullish on Europe as UNCTAD, but said France and Germany had both benefited from higher aircraft sales.

Examining US tariffs on $250 billion worth of imports from China and Chinese tariffs on $110bn worth of imports from the US, Nomura found evidence of US and China import substitution in 52% of the 1,981 tariffed products.

“Vietnam is by far the largest beneficiary, gaining 7.9% of GDP from trade diversion, followed by Taiwan (2.1% of GDP), Chile (1.5%), Malaysia (1.3%) and Argentina (1.2%),” it concluded.

US tariffs on China have resulted in US import substitution in mostly electronic products, followed by furniture and travel goods.

“This finding suggests that there could be substantially more import substitution if the Trump administration follows through on its threat to impose 25% tariffs on the remaining circa $300 billion  of imports from China, given they largely comprise of electronic products. China’s tariffs on the US have resulted in China import substitution mostly in soybeans, aircraft, grains and cotton.”


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