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‘Trade war results in higher prices for consumers, substantial export losses’

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UNCTAD Headquarters


Latest report released by the United Nations Conference on Trade and Development (UNCTAD), has revealed that tariffs imposed by the United States on China are economically hurting both countries.

The study, “Trade and trade diversion effects of United States tariffs on China,”  shows that the ongoing US-China trade war has resulted in a sharp decline in bilateral trade, higher prices for consumers and trade diversion effects (increased imports from countries not directly involved in th trade war).
 
Besides, the report also revealed that trade diversion effects on African countries have been minimal.By analysing recently released trade statistics, the study finds that consumers in the U.S. are bearing the heaviest brunt of the U.S. tariffs on China, as the associated costs have largely been passed down to them and importing firms in the form of higher prices.However, the study also finds that Chinese firms have recently started absorbing parts of the costs of the tariffs by reducing their exports prices.

UNCTAD’s Director, International Trade and Commodities, Pamela Coke Hamilton, said the results of the study serve as a global warning. A loss-loss trade war is not only harming the main contenders, it also compromises the stability of the global economy and future growth.“We hope a potential trade agreement between the U.S. and China can de-escalate trade tensions.”

The analysis shows that U.S. tariffs caused a 25 per cent export losses, inflicting a $35billion blow to Chinese exports in the U.S. market for tariffed goods in the first half (H1) of 2019.This figure also shows the competitiveness of Chinese firms, which despite the substantial tariffs maintained 75 per cent of their exports to the U.S.The office machinery and communication equipment sectors were hit the hardest, suffering a $15 billion reduction of U.S. imports from China, as trade in tariffed goods in those sectors fell by an average of 55 per cent.

Trade of tariffed goods in sectors such as chemicals, furniture, and electrical machinery also dropped substantially according to the analysis.
Although the study does not examine the impact of the most recent phase of the trade war, it warns that the escalation in the Summer of 2019, is likely to have added to the existing losses.

While it does not consider the impact of Chinese tariffs on U.S. imports, the study indicates that qualitative results are most likely to be analogous: higher prices for Chinese consumers, losses for U.S. exporters and trade gains for other countries.While China loses, other economies gain; U.S. tariffs on China have made other players more competitive in the American market and led to a trade diversion effect.
Of the $35billion Chinese export losses in the U.S. market, about $21billion (or 62 per cent) was diverted to other countries, while the balance of $14billion was either lost or captured by U.S. producers.
 
According to the report, U.S. tariffs on China resulted in Taiwan (province of China) gaining $4.2 billion in additional exports to the U.S. in H1 2019, by selling more office machinery and communication equipment.Mexico increased its exports to the U.S by $3.5billion, mostly in the agri-food, transport equipment and electrical machinery sectors.
 
The European Union gained about $2.7billion due to increased exports, largely in the machineries sectors.Vietnam’s exports to the U.S. swelled by $2.6billion, driven by trade in communication equipment and furniture.Trade diversion benefits to Korea, Canada, and India were smaller but still substantial, ranging from $0.9billion to $1.5billion.The remainder of the benefits were largely to the advantage of other South East Asian countries.

 


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