The Other Side of the Trade War

The trade war between China and the United States, the two largest economies in the world, can become a long, complex, and expensive dispute. However, according to a report published by Nomura Holdings, some countries may benefit from this conflict. This battle began on March 23 of 2018, when Donald’s Trump government imposed an increase in tariffs from 10% to 25% on imports of aluminum and steel, which primarily affected China. Twelve days later, the Asian country announced 25% tariff penalties for a total of 106 products imported from the United States, including soybeans, automobiles, and airplanes, for a value of 50,000 million dollars.

The United States imports around $540 billion of Chinese products every year, China imports around $120 billion in US products, helping to maintain approximately 900,000 US jobs.

The enmity between these two countries has been increasing; as a consequence, China and the United States could change their production chains to avoid tariffs. Instead of an “onshoring” solution (moving factories or farms from China to the United States and vice versa), companies are looking for replacement countries for their production chains.

Which countries could benefit?

Nomura’s analysis explains that more than half of the 1,981 tariff products between the US and China have already been redirected to other countries, showing who could be the “winners and losers” of the trade dispute between the two world powers.

According to the economists Rob Subbaraman, Sonal Varma and Michael Loo of Nomura Holdings, Vietnam would be one of the countries with the best chances of taking advantage of the economic war as US companies could use them as a replacement for China in the short, medium or even long term in their supply chains. Vietnam has already begun to receive orders from Chinese companies to serve as substitutes for materials previously brought from the US. South Korea and Taiwan export much of the same electronic equipment as China. Tariffs applied to Chinese products are likely to make products from South Korea and Taiwan more competitive. The United States has already begun to increase its imports from these two countries, causing an increase in Taiwan’s profits that are equivalent to 2.1% of its GDP.

Countries in Latin America can also benefit from this dispute. Brazil and Argentina are the largest producers of soybeans in the world after the United States so that they could replace US soybeans in the Chinese market. Chile, which could increase the amount of copper that exports to both countries.

Nomura’s report made it clear that although there would be “winners,” that is, countries that could increase their exports to China or the United States, the global economy was going to suffer because of the tariff dispute of the two most significant economic powers in the world. This fight may affect investments due to the uncertainty of trade in the future.

 

By Maria Letona