Business World

Thursday 14 November 2019

Tariff turmoil bites: EU emerges as the ‘dog with a bone’ in US-China trade war

Donald Trump (Brian Lawless/PA)
Donald Trump (Brian Lawless/PA)

David Chance

The latest global monthly trade figures show a downturn and indicate that volumes will fall through the year, which looks like bad news for our exporters.

Data published by the CPB Netherlands Bureau, a body whose numbers are watched closely, showed that world trade volumes fell by 1.8pc month-on-month in February, in part as protectionism bites deeper.

There may, however, be a silver lining in that protectionism for Europe’s hard-pressed exporters as the US and China go toe-to-toe in their tariff wars, at least in the short term, according to researchers with the Dutch central bank.

The US and China are embroiled in a bitter trade war that has seen Washington impose hefty tariffs on imports from its economic and diplomatic rival.

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The research suggests that the EU would benefit from the economic battle between the world’s two largest economies after the US suddenly increased tariffs on nearly 50pc of its imports from China to be met with tariffs on more than 70pc of imports from the United States.

“While two dogs (the US and China) are fighting for a bone, a third (the euro area) runs away with it. That is, the euro area may benefit from the US-China trade conflict in the short-run,” two economists from the Netherlands central bank said this week.

Total exports from here stood at €140.8bn in 2018, of which €39.12bn or 28pc went to the United States and €5.47bn or 3.3pc went to China.

While the Chinese number is relatively small, business lobby group Ibec noted recently that it accounted for a fifth of net growth in Irish goods exports in 2016 and more than a third in 2017. The economic cycle here is more sensitive to that of the US than it is to that of the UK or the EU, according to recent research from the National Treasury Management Agency.

While the trade war between the world’s two economic superpowers will reduce overall global economic growth, the two researchers from the central bank, Wilko Bolt and Kostas Mavromatis along with Sweder Van Wijnbergen of the University of Amsterdam found there would be benefits to the eurozone.

They found that Chinese exports would be diverted to the euro area at lower prices while the prices of Chinese goods in the US, improving competitiveness vis-à-vis Chinese exporters in the US.

“China and the US hurt each other significantly, but European employment picks up as exports become more competitive in the US and Chinese imports become cheaper,” the economists wrote on Vox, the economic policy portal of the Centre for Economic Policy Research.

“The analysis suggests that as long as it does not get involved in the conflict, the euro area profits from cheaper imports from China as they get diverted from the US, and it gains improved competitiveness in the US in response to tariffs against the Chinese and the appreciating dollar,” the economists wrote.

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