Trade Wars: May the Trade Force be with you



Georges Dib, Ludovic Subran, Corentin Jousserand | Allianz and Euler Hermes Economic Research

  • Global trade: The force weakens. In 2019, global trade of goods and services could grow at its slowest pace in a decade (+1.5%). Globally, exporters are likely to lose USD420bn. China (-USD67bn), Germany (-USD62bn) and Hong Kong (-USD50bn), as well as the Electronics (-USD212bn), Metals (-USD186bn), and Energy (-USD183bn) sectors, are the main victims of the trade recession. 

  • Will the U.S. and China empires strike back in 2020? The worst could be behind us but despite a slight acceleration we expect global trade to remain in this low-growth regime in 2020 (+1.7%), and our scenario of a Trade Feud continues (see Protectionism: Trade Games, Trade Feud or Trade War?). A superficial “mini-deal” between the U.S. and China, a slowdown in trade in services and a busy political year in 2020 leave no hope for sizable improvement. The sectors software and IT services (USD62bn), agrifood (USD41bn) and chemicals (USD37bn), as well as China (USD90bn) and the U.S. (USD87bn) will see the largest trade gains in 2020 (USD87bn and USD90bn, respectively). However, trade tensions have taken a toll: export gains would be roughly half of what they were in 2018 for both. In addition, Germany and the UK could be targeted by U.S. tariffs on cars.

  • The phantom trade menace. Trade diversion shows that a few winners are capturing export market share to the U.S. (Vietnam, France, the Netherlands and Taiwan) and China (Malaysia, Singapore, Russia  and Saudi Arabia).  However, these winners (like Vietnam) could be next on the hit-list. Meanwhile, phantom trade, whereby companies ship their merchandise to a third market (such as Taiwan, Japan) before exporting it to their trade partner, is unveiling tariff circumvention mechanisms and artificially inflating trade figures. Also note that Trade Tech is reshuffling trade cards in the backdrop: e-commerce platforms and blockchain technology are expected to reduce trade-related costs, while 3D printing could alter the cross-border production process by shortening global value chains, reducing operational risks but decreasing trade flows.

  • The return of the trade Jedis. Pervasive protectionism (~1,290 new trade barriers in 2019, number of new regional trade agreements divided by three and average U.S. tariffs more than doubled since 2017) has pushed countries to sharpen their trade arsenals. We identify countries that are irritable (i.e. could be tempted) and capable to wage trade wars (the U.S., India, Russia, China, France); those that are irritable but not equipped (Japan, Mexico, South Africa) and those that are neither equipped nor irritable (Australia, South Korea). Last, we expect new rules of the game, as part of the shift towards more sustainable trade (regulation of trade transportation and carbon emissions of traded products). Simplifying and considering the EU Border Carbon Adjustment tax (BCA) to be an outright tariff on EU imports, we estimate that a 1% tariff could result in a loss of USD7bn of exports to the EU, affecting Russian, U.S. and Chinese exports.

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