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Europe To Profit The Most From US-China Trade War: UN Report

uschinatradewar-feb05-lt.jpg

European Union countries will possibly profit the most from the ongoing US-China trade war, which in no way benefits the parties in dispute, a UN trade agency said.

A new study by the UN Conference on Trade and Development (UNCTAD) looks at the repercussions of existing tariff hikes between the United States and China, as well as the expected impact of a significant tariff hike possible to take effect next month.

The tariff hike is currently frozen, as both countries agreed for talks to strike a deal by March 1.

Washington said it will increase tariff rates on $200 billion worth of Chinese goods from 10 percent to 25 percent if the deal is not achieved by that deadline.

Amid tit for tat tariff hikes, trade is being diverted and a handful of countries will capture a slice of the trade giants' exports, UNCTAD estimates.

The study indicates that European Union will be the biggest beneficiary. Their exports are likely to increase the most, capturing about $70 billion of US-China bilateral trade ($50 billion of Chinese exports to the United States, and $20 billion of US exports to China).

Japan, Mexico and Canada will each capture more than $20 billion, UNCTAD estimates.

Countries such as Australia, Brazil, India and Philippines also are expected to get their share of exports from the trade dispute fall out.

"Because of the size of their economies, the tariffs imposed by Unites States and China will inevitably have significant repercussions on international trade," said Pamela Coke-Hamilton, who heads UNCTAD's international trade division, as she launched the Key Statistics and Trends in Trade Policy 2018.

The study underlines that bilateral tariffs would do little to help domestic firms in their respective markets.

The UN agency's analysis shows that while bilateral tariffs are not very effective in protecting domestic firms, they are very valid instruments to limit trade from the targeted country. Coke-Hamilton warned that US-China bilateral trade will decline and replaced by trade originating in other countries.

The study estimates that of the $250 billion in Chinese exports subject to US tariffs, about 82 percent will be captured by firms in other countries. About 12 percent will be retained by Chinese firms, while only about 6 percent will be captured by US firms.

On the other side, about 85 percent of the approximately $85 billion in US exports subject to China's tariffs will be captured by firms in other countries. US firms will retain less than 10 percent, while Chinese firms will capture only about 5 percent.

The results are consistent across different sectors, from machinery to wood products, and furniture, communication equipment, chemicals to precision instruments.

This happens because bilateral tariffs influence global competitiveness to the advantage of firms operating in countries not directly affected by them. This will be reflected in import and export patterns around the globe, the report said.

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