IMF: the EU-China trade war threatens the world but benefits Mexico
A study published in the blog of the financial organism also reports that production of this commercial dispute, the United States compensated with purchases to Mexico the imports that it stopped making to China for around 850 million dollars.
Consumers in the American Union and the eastern country are unambiguously the losers of trade tensions, says the text posted on the IMF blog and signed by its chief economist, Gita Gopinath, in co-authorship with Eugenio Cerutti and Adil Mohommad. The analysis directly refutes President Donald Trump's claim that tariffs are paid by China and generate a profit for the American Union.
While the impact on global growth is relatively modest at this time, the most recent escalation could significantly reduce business and financial market confidence, disrupt global supply chains and threaten the projected recovery of global growth in 2019.
The increase in US tariffs to 25 percent on Chinese annual imports worth $ 200 billion on May 10, along with the Chinese retaliation announced, marks the latest escalation in trade tensions between the United States and China.
The impact of the tariffs previously imposed by Washington and the subsequent reprisals in Beijing are already evident in the commercial data; both the countries directly involved and their trading partners have been affected by the increase in tariffs.
In 2018, remember, the United States imposed tariffs sequentially on three lists of products from China, heading first to 34 billion dollars in annual imports, then to 16 billion more and finally to 200 billion additional. As a result, US imports from China have declined significantly in the three product groups to which the tariffs were applied.
In cases where there was a delay between the announcement and the implementation of the tariffs, the IMF experts observed an increase in the growth of imports before the effective dates.
This suggests that importers were pre-supplied with tariffs, which explains the steeper decline in imports thereafter. As China imposed retaliatory tariffs, US exports to China also declined. While front-loading dynamics are not evident in this case, the growth of US exports to China has been generally weaker since commercial tensions began.
"Consumers in the United States and China are unequivocally the losers of trade tensions," the research, which relied on data from the Bureau of Labor Statistics on imports from China, concludes that the tariff revenue collected has been supported almost entirely by US importers.
Some of these tariffs have been transferred to US consumers, such as washing machines, while others have been absorbed by importing companies through lower profit margins. An additional increase in rates will likely be transferred in a similar way to consumers. While the direct effect on inflation may be small, it could lead to broader effects through an increase in the prices of domestic competitors.
As for the effect on the producers, it is more varied, with some winners and many losers. Some US and Chinese producers of products competing in domestic markets with imports affected by tariffs, as well as competing exporters from third countries, are possible winners. However, US and Chinese producers of goods affected by tariffs, as well as producers that use these goods as intermediate inputs, are possible losers.
Analysts note that aggregate bilateral data from the United States suggests that there has been a trade diversion since the decline in imports from China seems to have been offset by an increase in imports from other countries.
For example, US imports from Mexico increased significantly among some products to which the United States imposed tariffs. After the 16 billion dollar list was implemented in August, a sharp decline of almost 850 million in imports from China was almost offset by an increase of around 850 million from Mexico, leaving overall imports from the United States practically without changes. For other countries, such as Japan, Korea, and Canada, smaller increases in US imports can be observed.
The impact on US producers with significant exposure to Chinese markets was also reflected in stock market valuations. For example, the performance of stock prices of US companies with high sales to China performed less than that of US companies exposed to other international markets, after the tariffs linked to China's retaliation list were implemented. for 34 billion dollars. The gap narrowed at the beginning of 2019 with the commercial truce. But it was reopened again after the increase of the tariff in the United States to 25 percent in the list of 200 billion dollars was announced on Twitter.
Regarding the macroeconomic effects at a global level, the additional impact of the new tariffs announced and predicted recently by the United States and China, which is expected to extend to all trade between these countries, will subtract around 0.3 percent of world GDP. short term and half will come from businesses and markets.
"Failure to resolve trade differences and a further escalation in other areas, such as the automotive industry, which would cover several countries, could further affect the confidence of companies and financial markets, negatively impact spreads and currencies. emerging market bonds; and curbing investment and trade. Higher trade barriers would disrupt global supply chains and reduce the expansion of new technologies, which would ultimately decrease productivity and overall welfare. Further restriction of imports would also make tradable consumer goods less affordable, hurting low-income households disproportionately. This type of scenario is one of the reasons why we refer to 2019 as a delicate year for the global economy", concludes the analysis.