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No winners in US-China trade spat — says who?

Hardy Graupner
November 20, 2018

Policymakers in Europe have spared no effort to emphasize that there can be no winners in an escalated trade conflict between the United States and China. But a fresh study shows there are several beneficiaries.

Two fists showing US, China flags
Image: Colourbox

Voicing their frustration over the US administration's protectionist policies, the bulk of European politicians from all mainstream parties have criticized Washington for its aggressive trade stance toward China, maintaining the escalated conflict between the world's two largest economies can only produce losers.

But a study by research network EconPol Europe suggests such an assertion isn't quite true — in fact, it isn't true at all. The survey analyzes the impact of tariffs imposed by the US on China and the effect of China's retaliatory tariffs.

In September, Washington imposed import duties affecting roughly 50 percent of Chinese products worth $250 billion (€219 billion), while China introduced tariffs affecting some $60 billion worth of imported goods.

No level playing field

The EconPol Europe study calculates that Chinese exporters are bearing approximately 75 percent of the costs, meaning that eventually a net gain of $18.4 billion will be added to the US economy.

Two factors play a major role in this. The more obvious one is the grave imbalance of the volumes imposed by Washington and Beijing. But what's no less important is that the US tariffs were levied strategically, making sure it wouldn't be hard to find substitutions for affected Chinese imports.

China to become more export-oriented

Chinese exports to the US are bound to decrease by 37 percent because of higher duties, the study says, and this will eventually lead to 17 percent drop in China's trade surplus with the United States.

"Let's be clear that tariffs are nothing else but duties that have to be shouldered by foreign producers and domestic consumers," co-author Gabriel Felbermayr said in a statement.

He points out that US consumer prices for affected Chinese imports will most likely rise by 4.5 percent, but confirms that the US economy as a whole will profit from the protracted trade spat.

"The problem with protectionism is that can indeed be economically beneficial for the United States," Felbermayr said.

Asia perspective

The current US-China trade conflict may also serve as proof that the centuries-old adage "When two quarrel, a third rejoices" is still pretty much true.

According to research done by Japanese financial services company Nomura Holdings, the search by companies based in the US and China for suitable substitution for certain tariff-affected goods is benefiting Malaysia in particular, but Japan, Pakistan, Thailand and the Philippines are also among the beneficiaries.

Also in Asia, Vietnam has been gaining the most from firms relocating their production away from China. Malaysia, Singapore and India have also been profiting from this development.