Who’s benefitting from Trump’s trade war?
Trump's trade war is expanding from its focus on China, to India and potentially even Mexico. It has recently seen more concrete measures being put in place. From additional tariffs on hundreds of Chinese goods, to stripping India of its GSP status benefits, and the threat of 5% tariffs on Mexican products coming into force on June 10.
Diverting our focus from the US-China trade war, we see a pattern against targeted developing countries for goods, that face discrimination in the US. While this move could get Trump praises from his voter class, it could also benefit the unskilled labour force in the US. In addition, it could bring trade opportunities to Europe and other developing nations, which could change the trade map of the world.
Paradoxically, some of US’s actions could undermine its efforts and reasons behind the tariffs.
For example, Mexican immigration has been declining in the US, with more people going back to take advantage of the country’s growing economy. The US imposing the 5% tariff until Mexico stops illegal immigrants, will more likely slump the latter's economy. Then it stands to reason that the move could see more Mexicans migrating to the US.
Even when it comes to stripping India’s GSP status, the US is making the war with China tougher on itself. Since the two Asian countries see almost a 75% overlap between the goods on the tariff list, India could have massively benefitted by supplying to US companies at non-tariffed prices; and weakened China’s position. But because it will no longer enjoy duty-free exports to the US, it has indirectly undermined the US’s efforts against China.
So who is benefitting from these trade attacks? Clearly, it's not the stock markets, which have consistently seen declines over the past months.
“In the short run, workers in the exporting sector lose as labour demand shifts towards the import-competing sector, while workers in that sector gain,” economist Wolfgang Lechthaler, and assistant professor Mariya Mileva, write in their paper. “In the long run, skilled workers experience large losses in income and consumption, while unskilled workers are hardly affected.
US’s unskilled workers stand to gain, who have been suffering from manufacturers outsourcing to cheaper labour countries. They also form the majority of Trump’s voters, which could signify political moves for Trump to stay in power in light of elections coming up.
While that might be a political story Trump propagates in the US, there are certain other aspects which may not be considered by that voter class—there are other developing Asian countries who would be happy to take on China’s slack to gain precious FDI.
The US-China trade war, and now removing India’s GSP benefits, is pushing many US companies to import from other GSP countries such as Vietnam, Thailand, Cambodia, Indonesia and Turkey, who export a large chunk of items tariffed from China. We could also see some African countries take advantage of this situation to boost their trade industry.
According to the Washington DC-based Coalition for GSP, products hit by Section 301 tariffs when imported from China account for 90 per cent of increased GSP imports in 2019.The Economic Times
On the other hand, Chinese corporations are increasingly outsourcing to Vietnam in light of these tariffs. One, this move benefits Chinese companies with lower labour costs, and two, it could help them avoid tariffs and anti-dumping duties they face in the US when exporting from their own land. This does increase the risk for Vietnamese local companies to face excess US scrutiny and ban.
Besides the unskilled workers, there are other potential winners in this war. Apple (and Samsung), for example, stand to benefit from Huawei being blacklisted. Naturally, this would also benefit other competitive tech companies from Asia.
“While it seems unlikely that China and the U.S. will strike a deal anytime soon, we think one will be reached at some point.”Needham analysts
Bullish investors have also been spreading their risks and investing in companies that have the potential to grow. They are taking advantage of the low stock rates, with the confidence that whether it is six months down the line or a few years, there will be a trade agreement that is signed between US and China. However, they are more likely to benefit in the long term than short.
Tech startups is another segment profiting off this trade war, as sovereign wealth funds are increasingly interested in unlisted companies owing to unstable and shrinking stock markets.
Looking over to the east of the US, Europe also stands to gain by forming strategic ties with China. There is no denying that the second largest Asian country has significant benefits, such as fiscal power, and tech advancement. Taking advantage of its strenuous relations with the US will certainly help Europe gain vital political and economic power.
While the trade war is escalating with China imposing retaliatory measures, the global economy remains in a state of fear for the future. Morgan Stanley warns of another recession in as soon as nine months if an agreement is not reached. The US is still highly in debt from China, which many believe gives the latter the upper hand.
However, Trump remains unpredictable, and if all of this is indeed for his re-election campaign, it stands to reason that when it comes to populous rural, unskilled, working-class sections, his current actions could grab them by their votes. Things could get a lot worse in the near future for India, Mexico, and all those dependent on US FDI. However, if it goes on for too long, we could see the US’s powers shifting over to Europe, and the trade maps being revised to see new power dynamics emerge.