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There Could Be a Surprise Winner in the U.S.-China Trade War: The EU

A further tariff hike in the U.S.-China trade war would have huge implications for the global economy, according to the UN.

A report from the United Nations Conference on Trade and Development said the trade war and the U.S.’s planned tariff hike on $200 billion worth of Chinese goods was important “not only for the United States and China, but for all other countries” because of the size of the two economies. Pamela Coke-Hamilton of UNCTAD said the U.S. increasing tariffs on Chinese goods from 10% to 25% would be a “significant difference” that would have macroeconomic impacts around the globe, particularly with respect to instability in commodity and financial markets and global growth.

The report projects East Asian economies to be the biggest losers, with U.S. tariffs costing up to $160 billion in trade as the regional value chain shrinks.

But the effects of the trade war won’t be negative for all regions. The UN predicted the European Union stood to gain $70 billion as both China and the U.S. seek new outlets for their exports, and up to $90 billion in additional trade due to larger value chain changes in East Asia.

The report points out that the winner of the trade war isn’t likely to be the U.S. or China, despite each country’s protectionist intentions. U.S. firms are only expected to pick up about 6% of the value of tariffed Chinese exports, while Chinese firms will pick up 5% of the value of tariffed U.S. exports. In a news conference, Coke-Hamilton quoted former U.S. Secretary of State Cordell Hull, who compared protective tariffs to “a gun that recoils on ourselves.”

The U.S. originally intended to boost its tariff on Chinese goods from 10% to 25% on January 1st, but the two sides agreed to a 90-day delay as they worked to reach a trade deal. If the tariff increase does, in fact, take place; it’s not entirely clear how China will respond, but so far it’s matched the U.S.’s tariffs tit for tat.