A Few Winners Begin to Emerge from US-China Trade War
As China and the U.S. continue their trade war, the effects can be felt globally. The top two economies are engaged in a tit-for-tat game of tariffsand regulations that has seen industries in both countries take losses and the situation will likely soon worsen. On March 2, the U.S. will raise tariffs to 25-percent from 10-percent unless both sides come to an agreement, and there seems little hope that they will in such a short time.
Previously, President Trump called the probability of meeting President Xi Jinping before the deadline “unlikely.” On Thursday, he gave a firm “no” to a question about meeting Xi Jinping. Chinese markets had been closed for the Chinese New Year, but traders in Hong Kong had already assumed a less-favorable economic outlook.
There’s little doubt that China will retaliate with more tariffs of its own as both sides believe they can suffocate the other enough to resume negotiations. Irregardless of industry, the global economy is inextricably tied to both China and the U.S. China is the largest exporter, exporting goods valued at $2.263 trillion in 2017 according to the International Trade Centre, an increase of 7.9-percent over 2016. Over 40-percent of those shipments went to the North America and Europe.
China is also the second-largest importer behind the U.S., bring in nearly $2 trillion worth of goods in 2017. With low labor prices and an incredible abundance of skilled workers, China is the world leader in manufacturing, creating half of all products. Consequently, tariffs affect a startling number of companies, many of which are European-based, but use China as their manufacturing centers.
Other companies, such as BMW AG and Daimler AG, prefer to manufacture their products in the U.S. These German companies have had factories in North America for several decades now and both are unique in leading the U.S. automobile industry for exports to China. It is one market where the U.S. has a positive trade balance with China, exporting more than it imports. In 2017, BMW sent 100,000 vehicles to China, all of them produced at its plant in South Carolina. Mercedes wasn’t far behind, sending 72,000 automobiles.
The German car companies are only a couple examples of the negative effects of the Sino-American trade war. If you take a quick glance around your home, you can probably count a handful of other products without even leaving your chair: refrigerators, washing machines, mobile phones, televisions, video game systems, and even your t-shirt. With so many industries, companies, and countries tallying the downsides to the trade war, it’s worth asking if there are any winners in this mess.
Quite a few countries actually stand to benefit, at least in the short term. First, there is Vietnam, China’s southern neighbour. The country has become a “second China” when it comes to manufacturing. It already had a bustling manufacturing market, but now more companies are actually leaving China to head south to escape the tariffs.
GoerTek, the producer of Apple’s AirPods, announced plans in October to relocate its operations to Vietnam, pointing to the trade war as the main factor behind the decision. Brooks Running Shoes, a company backed by billionaire Warren Buffett, is also currently analyzing leaving China for the same reason.
Even before the tariffs went into affect, Vietnam was experiencing a GDP surge, rising nearly 7-percent from January to September 2018. Foreign companies had already looked to Vietnam and a number of Southeast Asian countries for expanding their production capacity in response to increasing land and labor costs in China. Now, they have all the more reason to consider new homes.
It’s not only Chinese companies moving south; in a survey by the American Chamber of Commerce, nearly 20-percent of 500 U.S. companies had planned to leave China, many of which had even already left. The relocations are made easier with a rise in foreign direct investment for the region. Manufacturing investments in both Thailand and the Philippines skyrocketed, paving the way for greater production opportunities.
The United Nations Conference on Trade and Development released a study last week which analyzed the repercussions of the trade dispute. It found that of the $250 billion of tariffed goods coming from China, 82-percent will be picked up by the countries, primarily in the EU. In the same way, 85-percent of the U.S. goods will be replaced by goods from other countries. The EU is predicted to gain $70 billion worth of trade. Mexico, Japan, and Canada will also walk away with large benefits, each gaining over $20 billion in trade.
Finally, the EU as a whole can benefit if it pushes for greater access to Chinese markets. EU leaders have long discussed the best way to open more trade with China, even releasing a detailed strategy in 2016. In the report, the European Commission proposed the EU should “promote reciprocity, a level playing field and fair competition across all areas of co-operation,” and “seize new openings to strengthen its relations with China.”
The EU now has the leverage to possibly make gains in its goals with China, although it\s unlikely the country will end all its unfair business practices.
Despite the economic benefits that some countries are reaping from the trade dispute, UNCTAD’s findings warn that the negative effects of the tariffs will likely loom larger, especially if the trade war begins to cause a global economic downturn. If the financial market takes a hit, developing countries will be the most-affected.