Asia’s small open economies may suffer in America’s trade war

CHINA is the stated adversary in Donald Trump’s incipient trade war. But 30% of the value of the goods China exports to America is added elsewhere. If the row escalates, countries entwined in Chinese supply chains will suffer.In absolute terms, Japanese suppliers will fare worst. Japan is the country that exports most to firms in China that export onwards to America. But relative to economic size, such suppliers are a bigger part of several small, open Asian economies (see chart). Between 1% and 2% of some countries’ total output is shipped first to China and then on to America. If Chinese exports to America were to fall by 10%—an extreme but not impossible scenario—it could...Continue reading Collateral damageAsia’s small open economies may suffer in America’s trade war As supply chains are unpicked, firms in China’s orbit may lose business print-edition icon Print edition | Finance and economics Mar 31st 2018 twitter icon facebook icon linkedin icon mail icon print icon CHINA is the stated adversary in Donald Trump’s incipient trade war. But 30% of the value of the goods China exports to America is added elsewhere. If the row escalates, countries entwined in Chinese supply chains will suffer. Get our daily newsletterUpgrade your inbox and get our Daily Dispatch and Editor's Picks. Latest stories What a ten-year-old duck can teach us about electricity demand Graphic detail5 hours ago A ball-tampering row consumes Australia Game theory6 hours ago An exhibition on German saving, the virtue turned problem Prospero6 hours ago China’s Communist Party meets the world Asia7 hours ago A blaze in a shopping mall leaves scores dead Europe11 hours ago We have seen the future and it twerks Buttonwood’s notebook13 hours ago See more In absolute terms, Japanese suppliers will fare worst. Japan is the country that exports most to firms in China that export onwards to America. But relative to economic size, such suppliers are a bigger part of several small, open Asian economies (see chart). Between 1% and 2% of some countries’ total output is shipped first to China and then on to America. If Chinese exports to America were to fall by 10%—an extreme but not impossible scenario—it could knock 0.1-0.2 percentage points off their economic growth. China’s competitors in industries that have been threatened with tariffs, namely aerospace, machinery and IT, however, would benefit. There are many of these in Mexico, Germany and Japan. Tariffs also encourage companies to switch their investment plans. When Ronald Reagan forced Japan to restrict its car exports to America in 1981 he (unintentionally) boosted Japanese investment in Thailand’s fledgling car industry. Manufacturing has already started to shift from China to other, cheaper countries in the region. Tariffs on goods made in China would speed this up. If the Chinese retaliate, an early target will be America’s farm exports. Brazil, the world’s second-largest producer of soyabeans behind America, would be happy to pick up the extra business. But America’s and China’s competitors should not cheer from the sidelines. A trade war would damage the world’s two largest economies and hit global growth. That would be bad for everyone. This article appeared in the Finance and economics section of the print edition under the headline "Collateral damage" print-edition icon Print edition | Finance and economics Mar 31st 2018 twitter icon facebook icon linkedin icon mail icon print icon Reuse this contentAbout The Economist

 

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