Direct damage to China and the United States due to a trade war will be similar, analysts estimate. For the US and Chinese economy, the consequences would result in a loss of 0.2 per cent to 0.3 per cent of annual GDP.
Analysts assessed economic consequences in the light of recent US and China actions: in response to Trump’s 25 per cent tariff quotas on Chinese imports, China announced symmetrical measures in relation to US goods.
Direct losses in the US and Chinese economies would be similar. However, the scale of risk for China can be a serious problem. The US has a more developed financial system, their economy is more focused on global financial markets than China. As such, China has the potential to seek appropriate moves.
The unwanted effects of this war will be largely negative for the economies of the economic partners of China and the United States, which in fact covers the entire Pacific region.
So the new recession could start earlier than expected. In the long-term, this trade war may cause changes in the Chinese economic system, such that, the transformation of domestic consumption becomes the main stimulus of the economy, and thus the development of an innovative industry.
In a way, this trade war will contribute to the acceleration of all these processes in the Chinese economy as an additional stimulator.
Currently, China cannot impose import quotas on state-of-the-art US technology products because it relies on technologies from America and other developed countries.
It is worth noting that the Chinese response measures were directed at the production of the US states that voted most for the Trump during the presidential election.
The products to which the tariffs apply include soy, corn, wheat, rice, sugarcane, beef, pork, poultry, fish, dairy products, nuts and vegetables.
According to data from Bloomberg Intel, the total value of US coal exported to China last year is $395 million. Today, China is one of the main buyers of American oil. This purchase helps stimulate the growth of US exports.
Meanwhile, for China, as the country’s largest oil importer, US oil is only a small part of their economic balance.
The largest suppliers are Saudi Arabia and Russia. In that respect, analysts believe that Chinese counterfeiters may severely affect US merchant exporters.
China in retaliation for US customs over $500 billion of Chinese imports to US reciprocal tariffs can go up to $175 billion worth of US imports to China. Therefore, the retaliation for US customs duties on full Chinese exports to the United States will have to reach for other measures, primarily importing from other countries and refusing to buy American products.
Many countries see the opportunity to enter the Chinese market. Along with Asian countries, Russia sees its opportunity to fill the void, and intends to replace many US products in the Chinese market.
Russian Minister of Economic Development Maxim Oreshkin is currently negotiating such possibilities with Chinese partners.
Oreshkin said the latest round of tariff increases between the United States and China would “positively and negatively affect the Russian economy”. The minister reminded everyone that they are forecasting “to slow down the dynamics of world economic growth,” and one of the factors is the “escalation of trade wars”.
“Trade wars will have an impact on raw materials and materials market, so we can predict the negative dynamics in oil prices,” Oreskin added, which would be a negative part of this story.
However, despite all the negative effects, the new situation opens up great opportunities for developing bilateral trade relations between Russia and China, but also India and other countries.
In the case of Russia, as one of the key Chinese partners and allies, the conflict between Beijing and Washington has again opened up an important issue of importing Russian gas to China, since Beijing plans to withdraw from US energy supplies in its retaliation measures, while gas demand in the country is growing with unbelievable speed.
It should be kept in mind that gas in China is not as competitive as oil. Oil is mainly used as fuel for cars, and gas for electricity and heating.
Coal competition, which is still the main energy source, is greater, which has led to ecological disasters in major Chinese cities. That is why they are trying to shut down coal-fired power plants and open gas stations, to develop renewable energy sources.
China’s rapidly and fast increasing gas consumption and imports of this energy goes hand in hand with Russia. There are big contracts — increasing supplies. Last winter, there was a deficit and they were forced to limit deliveries to consumers, because there was not enough gas.
Stefano Virgilli
stefano@virgilli.com
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