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Europe Could Reap Silver Lining From U.S.-China Trade Dispute

Published 2019-05-17, 04:29 a/m
Updated 2019-05-17, 05:04 a/m
© Reuters.  Europe Could Reap Silver Lining From U.S.-China Trade Dispute

© Reuters. Europe Could Reap Silver Lining From U.S.-China Trade Dispute

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Euro-area exporters could emerge as surprise winners from the escalating U.S.-China trade dispute.

If U.S. tariffs make imports from China less competitive, European firms have an opportunity to swoop in and take advantage. That’s an argument made by David Owen at Jefferies International, who says trade wars “create winners amongst the losers.”

“This seems to have been lost among all the negativity surrounding the subject,” Owen said in a report on Thursday.

ING economists also argue there’s a chance for Europe to capitalize on the trade tensions. They’ve previously highlighted the best-placed industries as machinery, auto parts, plastics, and some chemicals.

It’s something for the region to cling to in a week that saw Germany, its biggest economy, return to growth after a torrid 2018. Even the European Central Bank has made the point, with a recent research paper highlighting the potential benefits of trade diversion for Europe.

“In a trade dispute involving two countries, third countries may temporarily benefit from rising protectionism. Specifically, third countries can gain market share in countries where tariffs have risen.”--ECB Staff Research Paper

The U.S trade confrontation with China also provided a brief fillip to the European Union this week as President Donald Trump’s administration delayed slapping levies on imports from the bloc. The reprieve is temporary, but it gives the economic giants a chance to figure out a solution to avoid a damaging tariff battle between them.

There are still negatives to consider from the escalation in U.S.-China tensions, particularly a broad hit to business sentiment. China and the U.S. could also seek to dump excess product in the euro area, hitting local producers, says ING.

Global supply chains are complicated and it’s not clear how it will all pan out. Also, the U.S. could still decide to hit Europe with levies. The impact may “very much be non-linear and unpredictable,” Owen said.

“Reduced demand and increasing uncertainty in the U.S. and China will also suppress business investment, which will diminish the chances of European companies exporting capital goods,” said ING’s Timme Spakman. “On top of this, European producers of parts processed in the imports by the U.S. from China, or by imports by China from the U.S., may be hurt as well.”

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