US-China trade war could benefit Europe, Mexico, Japan

The trade war between the United States and China has caused major disruptions for global businesses — but it may also bring benefits for some.

Companies in Europe, Mexico, Japan and Canada could add tens of billions of dollars in export orders if the conflict drags on, according to a study released this week by the United Nations Conference on Trade and Development.

“The effect of US-China tariffs would be mainly distortionary,” said Pamela Coke-Hamilton, head of UNCTAD’s international trade division. “US-China bilateral trade will decline and be replaced by trade originating in other countries.”

The study warned that the tariffs “do little to help domestic firms” in the United States and China. And even if they end up benefiting exporters in other countries, they also risk setting off a damaging sequence of negative effects around the world.

The US and Chinese governments are scrambling to strike a deal before March 2. If they fail to reach an agreement before the deadline, the United States has threatened to hike tariffs on $200 billion of Chinese goods from 10% to 25%.

Of the more than $300 billion of China-US trade that has been hit with new tariffs since July, about $250 billion is likely to shift to other economies, the UN estimates.

The European Union stands to gain the largest share, about $70 billion of new exports, according to the study. That’s because economies in the bloc are globally competitive and have the most potential to ramp up their exports, the report said. Mexico, Japan and Canada could all add more than $20 billion of new exports.

“Bilateral tariffs alter global competitiveness to the advantage of firms operating in countries not directly affected by them,” the UN said.

Potential domino effect

But the gains for some countries could be undermined by other aspects of the trade war, which has contributed to an economic slowdown in China and triggered volatility in global markets.

A continuing tariff battle may do further harm to “the still fragile global economy” by disrupting global supply chains and causing turmoil in commodity prices and financial markets, the UN said. It warned that “more countries may join the fray” by imposing their own tariffs and that “trade tensions could spiral into currency wars.”

Even if some European industries could benefit from trade that’s pushed in their direction by the tariffs, many of the continent’s top companies are far from immune from the conflict because of their globe-spanning operations.

German automakers Daimler and BMW, which export high-end vehicles to China from their US plants, said last year that Chinese tariffs on American-made cars were hurting their profits.

The US-China dispute has also distorted major industries in some economies. Tariffs on American soybeans prompted Chinese importers to switch to Brazilian suppliers last year.

But Brazilian farmers have struggled to capitalize on this development, according to the UN. They are reluctant to make big investment decisions that could become unprofitable if the tariffs are reversed.

The China-driven rise in soybean prices in Brazil has also pushed up costs for local businesses that need to buy soybeans for animal feed and other uses.