06/03/2019
Thanks Prof Goh for your illuminating talk on the potential fallout of a trade war between the US and China! We certainly learned a lot on the topic.
Here are a four key points captured from the talk, some of which are interestingly counterintuitive:
1) Direct trade statistics between the 2 countries are not enough to understand the state of US-China trade relationship, since many goods produced in China bound for the US have important components manufactured in other places such as S.Korea and Japan. As such, tariffs imposed by the US might also have a large impact on these economies, even though they do not show up directly in the trade statistics between US and China.
2) The direct impact of tariffs imposed by the US and China from increased costs to trade are relatively muted and will most likely be mitigated by producers and consumers in both countries sourcing from other locations. However, the indirect impact of such trade tensions, which constitute a major negative shock, on the financial markets could be much more egregious and unpredictable.
3) Within Europe, Germany is likely to be hardest hit by any trade tension as German companies have the most global supply chains. While this helped them maintain global cost competitiveness by sourcing cheaply, they are also exposed to global trade risks. Trade may also be diverted from China to Europe, and countries producing goods similar to China could potentially become more competitive in supplying to the US. On the other hand, Chinese companies with excess capacity might work harder to enter the EU market, leading to more intense competition in Europe.
4) Trade protectionism is likely to be here to stay until the problem of inequality can be solved. Trade protectionism is a negative response towards globalisation, which while arguably has led to massive increases in economic welfare, is being perceived to be the cause of economic malaise in developed countries (jobs being off-shored etc.). This fundamental issue needs to be solved for various countries to swing back decisively in favour of open and free trade.
