UN warns of "massive" impact of US-China tariff hike - Just Style
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UN warns of “massive” impact of US-China tariff hike

By Georges Corbineau 11 Feb 2019

UN warns of “massive” impact of US-China tariff hike

The United Nations is calling for a fast resolution of the tit-for-tat trade dispute between the US and China, warning it could have “massive” implications on the global economy. And with analysis showing bilateral tariffs would do little to help protect domestic firms, a handful of countries are set to capture a slice of the giants’ exports.

Currently, around US$250bn in Chinese exports have been hit by higher US tariffs, while around $110bn in US exports are subject to new tariffs by China. But unless the US and China agree to drop their ongoing tariff spat by 1 March, the tariff rates will rise from 10% to 25%.

But new research by the UN Conference on Trade and Development (UNCTAD) – ‘Key Statistics and Trends in Trade Policy 2018: Trade Tensions, Implications for Developing Countries’ – estimates that of the $250bn in Chinese exports subject to US tariffs, about 82% will be captured by firms in other countries, about 12% will be retained by Chinese firms, and only about 6% captured by US firms.

Similarly, of the $110bn in US exports subject to China’s tariffs, about 85% will be captured by firms in other countries, US firms will retain less than 10%, while Chinese firms will capture only about 5%. 

The reason is simple: bilateral tariffs alter global competitiveness to the advantage of firms operating in countries not directly affected by them. This will be reflected in import and export patterns around the globe.

Pamela Coke-Hamilton, director of the division on international trade and commodities (DITC) at UNCTAD, warns the implications of this would be “massive” and would “involve an economic downturn…due to instability in commodities and financial markets.”

Coke-Hamilton adds there would be “increased pressure on global growth, as companies will have to impose adjustment costs which will affect productivity investment and profitability.”

The countries that stand to benefit the most from the trade spat are the EU members, with exports in the bloc likely to grow by US$70bn. Japan and Canada, meanwhile, are set to see exports increase by more than US$20bn each. 

For some countries like Mexico, the increase in exports will amount to a 6% increase in exports overall. Other countries expected to benefit include Australia with 4.6% export gains, Brazil with 3.8%, India with 3.5%, the Philippines at 3.2% and Vietnam with 5%.

But the trade spat could hit East Asian producers the hardest – with a projected US$160bn contraction in the region’s exports unless discussions between China and the US are resolved before the March deadline.

The report also warns trade tensions could spiral into currency wars, making dollar-denominated debt more difficult to service.

Another worry is that more countries may join the fray and that protectionist policies could escalate to a global level. As protectionist policies generally hurt weaker countries the most, a well-functioning multilateral trading system able to defuse protectionist impulses and maintain market access for poorer countries is crucial.

US apparel industry trade bodies continue to express concern tariffs could have on the sector.

Commenting on US President Donald Trump’s latest State of the Union address, which called for legislation that would give him more authority to increase tariffs on imports from countries that place restrictions on US goods, Rick Helfenbein, president and CEO at the American Apparel & Footwear Association (AAFA) said: “The continued touting of tariffs and their impact on the American economy is somewhat misleading and potentially destructive. The end may never justify the means. The tariffs on $250bn worth of US imports from China are adding dollars to the government’s coffers – however this money is not being paid by China, but rather is paid by hard-working American families.”

Matthew Shay, president and CEO of the National Retail Federation (NRF), added: “We hope the US and China will continue to move toward a deal and avoid further escalation.

“Achieving structural reforms, ending existing tariffs and putting an end to the trade war would provide much-needed certainty and relief for American businesses and families. We encourage the administration to continue to focus on the end goal, and for Congress to restore rather than further neglect its role in trade policy.”

The ongoing trade tensions initially came to a head in early 2018 when China and the US imposed tariffs on about $50bn of each other’s goods. The confrontation quickly escalated, and in September 2018 the US imposed 10% tariffs covering about $200bn of Chinese imports, to which China retaliated by imposing tariffs on imports from the US worth an additional $60bn. The 10% tariffs were initially due to rise to 25% in January 2019. However, in early December 2018 the parties agreed to freeze the tariff increase until 1 March 2019.