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Impact of Trade War - Mexico, Taiwan and the EU benefit from the US-China Trade War - UNCTAD
08 November 2019

The lose-lose and still lingering trade war between the United States and China has cost both sides billions, and consumers and components importers are footing the biggest part of the bill, writes Tara Donaldson of Sourcing Journal.

 “U.S. consumers are paying for the tariffs…in terms of higher prices,” said Alessandro Nicita, an economist at the UN trade agency, UNCTAD and author of the agency’s Trade and Trade Diversion Effects report released on 5 November. “Not only final consumers like us, but importers of intermediate products–firms which import parts and components from China.”

As such, punitively dutied product imports from China fell 25 percent in the first half of 2019, according to the report. But this may ultimately be more damaging for the U.S. than China, too.

“While substantial, this figure also shows the competitiveness of Chinese firms, which despite the substantial tariffs, were still able to maintain 75 percent of their exports to the United States,” the report noted.

Though some apparel brands and retailers are actively curbing their reliance on China for sourcing, many are still finding that they can’t get exactly what they want done in other countries.

However, as the U.S. and China continue to self-inflict economic wounds while they work toward some consensus on trade, some of those other countries are emerging victorious.

“The trade diversion effects increased imports from countries not directly involved in the trade war for the first half of 2019 at about $21 billion, implying that the amount of net trade losses corresponds to about $14 billion,” UNCTAD noted. “Trade diversion effects have bought substantial benefits for Taiwan (province of China), Mexico and the European Union.”

Where textiles and apparel are concerned, tariffs on Chinese imports have boosted the European Union sector by $66 million in the first half of the year, Mexico has brought in an additional $47 million, and Taiwan picked up $8 million in additional textiles and apparel business as a benefit from the trade war.

The favor from the fallout, however, may not continue at the same rate, as Chinese exporters have started to lower export prices to help companies bear the tariff burden.

“For the second quarter of 2019 prices appear to have declined significantly more for the product subject to tariffs,” the UNCTAD report noted. “In magnitude, the results for Q2 2019 indicate lower Chinese export prices by about 8 percent on goods subject to tariffs.”

The impact of the trade war has been negative for the Chinese Yuan (see chart) that has fallen from around 6.4 Yuan/doolar to just over 7.0 Yuan/dollar since the trade war began, thus making Chinese exports more competitive and offsetting the punitive duties imposed by the Administration.

The trade war isn’t making a winner out of either of its contenders, particularly now that the signing of a phase one trade deal could be delayed until December, a senior Trump administration official told Reuters on Wednesday. What’s more, the drag-out trade war has bigger ramifications for more than just the U.S. and China.

“The results of the study serve as a global warning; a lose-lose trade war is not only harming the main contenders, it also compromises the stability of the global economy and future growth,” Pamela Coke Hamilton, UNCTAD’s director of international trade and commodities, said. “We hope a potential trade agreement between the U.S. and China can deescalate trade tensions.”