Will There Be Winners in the U.S.-China Trade War?
With tariffs slowing U.S. trade with China, several countries are hoping their exports will become more affordable and that their economies will reap the rewards.
With recent talks running aground, the trade dispute between the United States and China looks like it’s here to stay. While most experts agree that both sides lose in a trade war, some note that resulting changes to supply chains and investment patterns could set some other countries up to be potential winners.
What’s at stake?
U.S. tariffs on Chinese imports—and China’s retaliatory tariffs on American goods—have already cut bilateral trade. Economists think the spat could eventually reduce global gross domestic product (GDP) by hundreds of billions of dollars.
That’s because the United States buys more goods from China than from any other country, importing $540 billion worth in 2018. American businesses and families benefit from low-priced goods, ranging from industrial machinery to consumer goods such as electronics, furniture, clothing, and toys.
Meanwhile, U.S. exporters send more than $120 billion worth of goods to China’s enormous market each year. The U.S. automotive, aerospace, and agricultural industries in particular have benefited from China’s economic expansion over the past few decades, and the U.S. government calculates that exports to China support more than nine hundred thousand jobs.
Is anyone benefiting from the dispute?
Some on the sidelines of the trade war could come out ahead, as companies shift production to avoid tariffs. Instead of “onshoring,” or bringing factories or farms back to the United States from China, firms are looking for replacement countries.
Potential winners include:
Argentina and Brazil. South American soybean farmers are expected to pick up the slack from falling U.S. soybean exports to China, which has historically been the top destination for U.S. soy. Brazil saw strong demand for its soybeans as China shifted its purchases to other suppliers. But the outlook for South American exporters has been clouded by other factors, such as Chinese goodwill purchases of U.S. soybeans in early 2019 and an outbreak of African swine fever in China, which has weakened demand for soy pig feed.
Mexico. The United States’ southern neighbor competes with China, exporting many of the same types of goods to the U.S. market, so it stands to benefit from Chinese products becoming more expensive. And if the updated North American Free Trade Agreement (NAFTA) gets passed, it could give Mexico’s exporters another boost—a prospect now threatened by President Donald J. Trump’s plan to impose new tariffs on Mexico.
South Korea and Taiwan. Both of these Asian tigers export a lot of the same electronic equipment that China does. Tariffs on Chinese products likely make South Korean and Taiwanese goods more competitive, despite higher wages in those two countries: 2019 trade data shows U.S. imports from both countries are on the rise.
Vietnam. The country has been called “the new China,” given its low wages and lax labor and environmental regulations, and it could be poised to expand its exports of manufactured goods to the U.S. market. Several firms have relocated production there in recent years, and U.S. imports from Vietnam have already risen 34 percent in 2019.
Shifting supply chains is costly, and businesses try to avoid it. Many analysts predict that once new supply chains form they will tend to stick around, even if the U.S.-China dispute cools. Trade-war winners could enjoy long-term gains even after a truce.
Of course, counting on any such gains is risky. A trade war that torpedoes global growth or leads to a recession in the United States would likely sink all boats.