|The US/China trade war is alarming for the global economy, but there’s a silver lining to it, writes Mohamed A. El-Erian, chief economic adviser to the European financial-services giant Allianz. The future of trade depends on more than resolving tariff disputes; it depends on removing new obstacles, including intellectual-property theft and the forced transfer of technology—which are among the Trump administration’s chief complaints about China.
While President Trump’s tariff war is a throwback, it might wind up normalizing trade in a way that helps everyone. Cooperation has failed to address trade’s new problems, and if it takes old trade weapons to fix them, then so be it.
The pain of a tariff war could be real, if it resumes in March—a UN official warned of a “massive” impact earlier this month—but if negotiations can resolve things other than a bilateral trade imbalance, Trump’s tactics could end up providing a “beneficial disruption that helps reset international trade relationships and place[s] them on a firmer footing,”
The US and China have a deadline of 1 March to strike a deal, or the US has said it will increase tariff rates on $200bn (£152bn) worth of Chinese goods from 10% to 25%.
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The UN Conference on Trade and Development (Unctad) has warned that there will be huge costs if the trade war escalates.
“The implications are going to be massive,” Pamela Coke-Hamilton, Unctad’s head of international trade, said at a news conference.
“The implications for the entire international trading system will be significantly negative.”
Smaller and poorer countries would struggle to cope with the external shocks, she said.
The higher cost of US-China trade would prompt companies to shift away from current east Asian supply chains.
Unctad’s report estimates that east Asian producers will be hit the hardest, with a projected $160bn contraction in the region’s exports.
But it warns the effects could be felt everywhere.
“There’ll be currency wars and devaluation, stagflation leading to job losses and higher unemployment and more importantly, the possibility of a contagion effect, or what we call a reactionary effect, leading to a cascade of other trade distortionary measures,” Ms Coke-Hamilton said.
Unexpected winners and losers
The higher cost of US-China trade would prompt companies to shift away from current east Asian supply chains, but report suggests it’s unlikely that US firms would pick up that business.
The study found that US firms will only pick up 6% of the $250bn in Chinese exports that are subject to US tariffs.
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Of the approximately $85bn in US exports that are subject to China’s tariffs, only about 5% will be taken up by Chinese firms, the UN research shows.
The study found that European exports will grow by $70bn, while Japan, Canada and Mexico will see exports increase by more than $20bn each.
Other countries that could benefit include Australia, Brazil, India, the Philippines and Vietnam, the report said.