Tariffs, which countries have the most to lose in the trade war that is picking up

Tariffs, which countries have the most to lose in the trade war that is picking up

The effects of these actions on the global economy are still not clear. Experts from around the world are raising flags with concerns that an escalating trade war isn’t good for business. Depending on who you hear and where this person is from the opinions vary a lot. Something they all seem to agree upon is that the scenery will never be the same as it was before all this turbulence started.

Without taking sides and avoiding getting into the heart of this matter in regard to fairness and rightness, we tried to take a look out there, hearing and learning views of many specialists.

It is important to say that the views and opinions expressed below do not necessarily reflect our position on this topic. Rather, these comments are the result of the compilation of points of view of several professionals in this field.

Which countries have the most to lose in this trade war? Here are some thoughts.

China
It seems that the main conflict is between the United States and China, because Washington has realized that in the next decades, China will continue to grow, gradually gaining market share and imposing its global technological leadership. In this context, the US has asked Beijing to stop supporting the country’s technology sector, since the United States intends to maintain its supremacy in this area. In the event of escalating tensions, the trade between these countries would shrink sharply and China, a major exporter to the United States, would produce much less. This is a risk that explains a large part the dip of 16% of the Chinese stock market index since the beginning of 2018.

United States
The sharp drop in the Chinese stock market contrasts at least with the healthy Nasdaq Composite – up 11% in the same period – for the technology stocks. One possible explanation for this gap is that some bet that the difficulties of the Chinese to export to the United States would be offset by an increase in the US production. Consequently, the United States would not be the losers of an escalation of the trade war, some specialists believe. If on one hand the US president seems to want to produce uncertainty, on the other hand, he calms things down, not to risk a boomerang effect for the United States. For instance, his threats of exiting NAFTA are something that we hear less and less. The International Monetary Fund is, however, more pessimistic about the impact of an open trade conflict on the US economy. They say that while all countries will eventually be weaker, the US economy is particularly vulnerable because a large part of its trade will be subject to retaliation. They argue that the other economies could reorganize their trade flows between them. This which makes sense in a way.

Germany, South Korea, Mexico and Canada
According to many experts, these countries will be the most affected ones, in the short-term. They justify by saying that their economies, where the weight of foreign trade in GDP is particularly important, make them more vulnerable to an open, short-term trade war. Worse, Mexico and Canada, which are part of the NAFTA, are very closely linked with the United States, which is by far – their largest customer. As for Germany, it is very possible that their car industry will be particularly targeted by the US president. While Daimler and BMW are exporting a lot of cars produced in US to China, they would suffer from an increase in Beijing tariffs on American exports.

Japan
The experts seem to agree that the Japanese economy should be relatively unaffected by an open trade war – far less than countries like Mexico, Canada or Germany. Indeed, if the United States weighs only 20% of this country’s exports, the foreign trade accounts for only 18% of the latter’s GDP. For all that, the Japanese should be cautious with second-hand effects. In fact, Japan, which exports a lot of capital goods – including automation elements – to China, would eventually suffer from the impact of the trade war on the economic downturn of that country.

Brazil
Similarly, Brazil, though gifted with a vast market of around 210 million consumers, with significant domestic trade, could be an unexpected loser of the conflict. And again, it all goes back to China. It is true that the Brazilian economy — the first Latin American economy — is not part of NAFTA and is not closely linked to the US economy as Mexico for example. However, even if this country would not be directly affected, it would be indirectly, in a second-hand effect. Indeed, Brazil exports a lot of meat, orange juice and other commodities to China and the rest of Asia, and would therefore be automatically affected by a decline in China’s growth regime linked to the trade war.

As we get closer to a serious trade war, one way to answer the question of which country has the most to lose if things get really out of control is to compare the contribution of the foreign trade in the gross domestic product (GDP) from different countries. Another way is to look at the share of the exports of the different countries that are destined for the American market.

This article is for general, indicative purpose only and should not be considered investment advice. Florida Connexion is not liable for any financial loss, damage, expense or costs arising from your investment decisions based on this article.

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