US-China Trade Battle Hits Global GDP as Negative for 2-3 Years
US-China Trade War - Photo by GettyImages

JAKARTA (TheInsiderStories) – The ongoing trade battle between the United States (US) and the China presents obstacles to global manufacturing and international trade that have stimulated growth and prosperity in Asia. The findings show that, the gross domestic product (GDP) will decline by around 1 percent in the China and 0.2 percent in the US for 2-3 years, told Asian Development Bank (ADB) latest report titled: “Impact of Trade Conflict against Developing Countries in Asia“.

The ADB survey sees three scenarios of these impacts: 1) at present; 2) bilateral escalation; and 3) what is called the worst case.

The ‘current scenario’ describes a set of tariffs that took effect in December 2019 before a temporary ceasefire and assumes the tariff rate will increase from 10 percent to 25 percent in 2019.

While the scenario of ‘bilateral escalation’ assumes a tariff rate of 25 percent for all US imports from China and all Chinese imports from the US.

And the ‘worst case’ scenario adds to this second scenario 25 percent tariffs on imports of US cars and parts and retaliation rates 25 percent of the affected countries. The ADB assesses, the greater impact on China is that the rates imposed by Washington in Beijing are a larger order of Chinese retaliation.

In addition, China is more dependent on US demand for its goods.

We can see that the impact of the bilateral feuds between these two countries massively affected global trade.

As we know, these two giant economies produce two-fifths of world GDP and about a quarter of international trade.

In its report, ADB warned that other developed economies such as the European Union (EU) and Japan would even suffer if the conflict continued to increase.

Meanwhile, signs of collateral damage to other Asian economies are also emerging, even when exports from the region remain strong. Investors and stock markets are increasingly worried.

Recently, the International Monetary Funding (IMF) issued a statement that if the second conflict continues it will make the world poorer.

Furthermore, the ADB study not only examines the direct impact of conflict on all goods affected by tariffs, but also estimates the indirect impact of tariffs on GDP, exports and employment.

Data shows its impact globally, regionally and in each country. The negative impact of the trade war on China cut many sectors.

In the ‘worst case scenario’, China’s electronics industry will be hardest hit by 0.15 percentage points of GDP. Other affected sectors included wholesale trade (0.08), mining (0.07 points), agriculture (0.07 points), textiles (0.07 points), financial services (0.06 points) and chemicals (0.06).

One positive outcome of the clash is that trade diversions can benefit several industries in Southeast Asia (ASEAN) that compete directly with China, such as electronics and textiles.

For example the impact of ‘current’ exports in the Philippines reached 0.79 percent, Malaysia 0.22 percent, Thailand 0.16 percent, Vietnam 0.13 percent and Indonesia 0.05 percent.

While the ‘current’ effect of the textile sector, Vietnam reached the highest position with 0.10 percent, Malaysia 0.03 percent, the Philippines, 0.01 percent, Thailand 0.02 percent and Indonesia 0.01 percent.

These ASEAN-5 countries have the potential to get in these two sectors if this transfer occurs, even though they also lose in the short term because the supply chain is affected. The transfer of trade and production is likely to occur later if that happens.

On the other side, the effect on global employment in the current scenario is negative, given weaker global GDP and lower trade.

The initial wave of trade measures could result in the loss of 3.5 million jobs in China and around 180,000 in the US. From an escalation scenario, if realized, it could lead to 8.5 million job losses in China (around 1 percent of total work in 2017) and significant job losses in developed countries such as the EU and Japan.

ADB assesses that trade diversion can allow a slight increase in employment in developing Asian countries outside of China.

Therefore, ADB recommends that Asian policy makers develop ways to protect their economies and so it can increase credit to counteract some of the negative effects of the US-China trade conflict.

Written by Daniel Deha, Email: daniel@theinsiderstories.com

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