US – China Trade War Maybe Win for Emerging Markets
The trade war between the US and China has been raging on for some time now. A lot of posturing has been seen on both sides but no sign of an agreement or truce is on the horizon. In fact, with the US planning to impose major tariffs on imports from China, it is possible that we may see further escalation of trade tensions between the two giants. However, while the trade war will see both the US and China stand to lose out, it may actually become a huge win for emerging markets, particularly in Asia. In fact, figures from the Asian Development Bank indicate that this is already the case.
Emerging Markets Emerging Victorious
While exports from China to the US fell by 12% in the first half of 2019, exports to the US from Asia’s emerging markets grew by 10% during the same period. Countries like Vietnam saw exports to the US surge by 33% and even Bangladesh witnessed a 13% growth in exports to the US. There is presently a huge global trade diversion effect going on as a result of the tensions in US – China trade ties and this is creating both winners and losers.
Vietnam is by far the standout winner in the Asian region as a result of the trade war, capitalizing on its efficient electronics manufacturing sector. There are also significant volumes of goods from China, going through or being assembled in Vietnam to bypass restrictions on trade with China.
Not All Peachy
While some countries are winning as a result of the trade war, countries that are heavily dependent on exports of raw materials and components to China are being adversely affected. Countries like South Korea, Japan, Taiwan and India have taken significant hits. The figures show a sharp decline in exports from these countries to China.
While global trade flows and patterns balance out, there is plenty of opportunity for many markets to capitalize on. However, it’s left to be seen whether they will be able to remain competitive, once global trade rebalancing is complete. Larger economies, in particular, may have a tough time trying to compete on pricing with some smaller emerging markets.
There are and will continue to be winners and losers in the trade war. Many will benefit from global trade and production rebalancing. Many will suffer too. However, what is remarkable about the state of the global economy in the atmosphere of this trade war is that the winners and losers are very unevenly distributed. And winners and losers aside, the whole global economy has definitely suffered significantly as a result of sub optimal allocation of resources.
One thing is, however, for certain. The present trend of protectionism is a negatively disruptive force for global trade and, if allowed to continue, will result in a less friendly, less open world. The expansion of protectionism will definitely lead to a permanent loss of output for the global economy. World leaders must unite to stand for reasonably free trade, because through trade everyone can win and grow.