UNCTAD Report on Trade Wars | 06 Feb 2019

Recently the UN body has released a report on trade wars titled "Trade Wars: The Pain and the Gain".

• This dispute between China and the United States will not benefit domestic producers in either country but could have "massive" implications on the global economy.

Background

• The ongoing trade tensions initially came out in early 2018 when China and the United States imposed tariffs on about $50 billion of each other’s goods.
• The confrontation quickly escalated, and in September 2018 the United States imposed 10% tariffs covering about $200 billion of Chinese imports, to which China retaliated by imposing tariffs on imports from the United States worth an additional $60 billion.
• 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.

Positive Impacts

• Amid tit for tat tariff hikes between Washington and Beijing, trade is being diverted and a handful of countries stand to benefit from the ongoing trade tensions.
• The trade war between the US and China is expected to boost the Indian economy with a rise of 3.5% in exports.
• The countries that are expected to benefit the most from the trade war are:
  • The EU members as exports in the bloc are likely to grow by USD 70 billion.
  • Japan and Canada will see exports increase by more than USD 20 billion each.
  • Other countries set to benefit from the trade tensions include Australia, with 4.6% export gains, Brazil (3.8) India (3.5), Philippines (3.2) and Vietnam (5).
• However, the study also underscores that even for countries whose exports are set to increase because of the trade disrutptions, not all the results will be positive.

Negative Impacts

• One major concern is the risk that trade tensions could spiral into currency wars, disturbances in commodity prices, financial markets, etc. all which will have important repercussions for developing countries.
• The magnitude and duration of tariffs is unclear, because of which producers have been reluctant to make investment decisions that may turn out to be unprofitable if the tariffs are revoked.
• More countries may join the fray and that protectionist policies could escalate to a global level, which is against the rule based order, thus hurting weaker countries the most.