2/13/2020 U.S.

-China Trade War Reshaped Global Commerce - WSJ

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ECONOMY

U.S.-China Trade War Reshaped Global

Commerce
Battle slammed the brakes on global trade growth, but a handful of countries and industries saw modest
benefits

Toyotas arrive in China’s Guangdong province last April. Japan’s auto makers bene ited
from the U.S.-China dispute as China reduced tari s on car imports from countries other
than the U.S.
PHOTO: CHINA STRINGER NETWORK REUTERS

By Josh Zumbrun in Washington, Feliz Solomon in Singapore and

Jeffrey Lewis in São Paulo
Feb. 9, 2020 5 30 am ET

The two-year trade war between the U.S. and China upended commerce world-wide,
slamming the brakes on global trade growth—but also delivering modest benefits to a
handful of industries and countries that saw gains as the giants tussled.

Growth in global trade sank to a meager 1% last year, down from 4% in 2018 and 6% in
2017. It was the fourth worst showing in 40 years, and the worst ever outside a period
of recession, according to International Monetary Fund data.

Several factors contributed to the slowdown, but analysts say the U.S.-China trade war
was the single-biggest cause. The U.S. and China are the world’s great buying engines,
each pulling in over $2 trillion a year of goods. Trade between the two nations slowed
as a result of tariffs and other measures, and the decline couldn’t be entirely made up
by purchases from other countries.

Behind the slump were falling U.S. sales to China of agriculture products, aircraft and
machinery, while China’s sales of electronics and industrial supplies to the U.S.
dropped. In some cases foreign suppliers were unable to fill the void, so many measures
of factory activity and demand slid.

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“Global growth and investment would have likely been higher in the absence of trade
uncertainty” from the U.S.-China fight, said Sergi Lanau, deputy chief economist at the
Institute of International Finance.

Overall, China’s imports dropped $59 billion in 2019, while American imports fell $42
billion, according to U.S. and Chinese trade figures compiled by Trade Data Monitor.

But the declines would have been much larger had trade not been diverted to many
other countries. Of the 15 countries with the largest change in U.S. imports last year, 11
saw increases while only four saw declines. For China, seven countries experienced
increases and eight saw declines.

Here’s a look at the economies that picked up the slack in the global trading system.

Southeast Asia
China’s loss was Vietnam’s gain, accelerating a long-term trend of Chinese factories
moving to Vietnam and other Southeast Asian countries where labor costs are lower.

Vietnam’s apparel trade with the U.S. has been growing for years, and clothing made up
about a third of the $66 billion in imports from Vietnam last year. But other categories
of purchases from Vietnam are growing rapidly—cellphone imports rose by about $6
billion, while furniture, telecommunications equipment and computer chips each saw a
$2 billion increase in sales to the U.S.

Trade experts caution that such increases can appear larger than they really are,
because the figures can reflect the rerouting of products from China “often not
changing anything but the label on a box,” to circumvent U.S. tariffs, said Dane
Chamorro, a partner at the consulting firm Control Risks.

Other east and southeast Asian countries recorded smaller gains in U.S. shipments,
including Taiwan, South Korea, Thailand, Malaysia and the Philippines.

Latin America
Latin America’s two largest economies—Brazil and Mexico—saw limited benefits from
the U.S.-China dispute.

Brazilian farmers have enjoyed higher demand for soybeans, especially in 2018 after
China halted such purchases from the U.S. While the American farm sector was mired
in a deep slump, Brazilian oilseed exports to China climbed $8 billion in 2018 alone.

Last year wasn’t quite as strong for Brazil, with soybean exports slipping amid an
outbreak of African swine fever that decimated pig herds in China, cutting demand
for soybean meal used as animal feed. Still, China’s imports from Brazil climbed $2
billion last year and are up $20 billion since 2017.

Although Chinese buyers paid a premium for Brazilian soybeans, that didn’t fully
compensate for the global decline in commodity prices, said Flavio França, a soybean
and corn analyst at Datagro in São Paulo.

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Soybeans are harvested in Campo Mourão, Brazil. The country bene ited as Chinese
buyers paid a premium for the commodity.
PHOTO: DIRCEU PORTUGAL ZUMA PRESS

“Farmers here were at least able to sell more and dry up some of their stocks in 2018,
and they got some extra income that way,” he said.

Meanwhile, U.S. imports from Mexico saw the second biggest gain of any U.S. trading
partner after Vietnam. That came even while Mexico fielded its own trade issues with
the Trump administration, including negotiating the successor to the North American
Free Trade Agreement and U.S. threats in mid-2019 to impose tariffs on all Mexican
exports unless Mexico slowed the number of Central American migrants arriving at the
U.S. border.

Europe

The export engine of Europe, Germany, suffered from weaker demand in China as that
country’s economy slowed. Germany also paid a price from Chinese tariffs on U.S.
exports: Bayerische Motoren Werke AG and Daimler AG’s Mercedes-Benz build SUVs
for the Chinese market in the U.S.

Meantime, Germany was rattled by a Trump administration threat—never carried out,

but never abandoned, either—to impose tariffs on global automobile imports.

Trade went from a 1 percentage point boost to Germany’s economy in 2017 to a 1.3
percentage point drag in 2018. Italy, however, was only marginally affected, and the
rest of Europe received a modest support from trade, according to calculations by
economists at JPMorgan.

While the Trump administration has threatened to impose broad tariffs on Europe
for a range of reasons, the only ones actually implemented were global steel and
aluminum tariffs in early 2018 and a relatively modest set affecting about $7.5 billion of
goods that was allowed by a World Trade Organization ruling over European Union
aircraft subsidies.

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Despite sharp declines in Germany, overall EU exports to the U.S. climbed 10.3% in 2019.
The Netherlands and France boosted sales to the U.S. by more than $5 billion each,
Ireland by $4 billion, Belgium by $3 billion and Italy by $2 billion.

Airbus SE filled a void left by the grounding of Boeing’s 737 Max jets, contributing to
increased aircraft exports from France. Ireland and Belgium exported more
pharmaceuticals and Netherlands boosted exports of petroleum products and
industrial machinery.

While U.S.-Europe trade has held up surprisingly well amid its efforts to stay neutral in
the global trade wars, foreign investment hasn’t. According to figures released by the
United Nations Conference on Trade and Development, foreign direct investment in the
EU fell 15% in 2019 from 2018.

Japan
In 2019, Japan’s exports fell 5.6%, marking the first annual decline in three years,
according to data from the Ministry of Finance released Jan. 23. Exports to China
declined 7.6%, while shipments to the U.S. dropped 1.4%.

However, recent signs suggest the worst may be over—Japan’s exports to China rose in
December for the first time in 10 months.

Some economists say Japan’s auto makers benefited from the U.S.-China trade dispute
as China reduced tariffs on cars imported from countries other than the U.S.

SHARE YOUR THOUGHTS

What repercussions do you foresee for U.S. trading partners after the U.S.-China trade
war? Join the conversation below.

China reduced tariffs on cars imported from countries other than the U.S. and helped
companies such as Toyota Motor Corp., which exports its luxury Lexus line to China
from Japan. Lexus sales last year in China including Hong Kong rose 25% to 202,000
units. Toyota’s overall sales in China rose 9% to 1.62 million vehicles despite the weak
market there.

Going Forward
With the U.S.-China trade war at a standstill, the International Monetary Fund predicts
global trade growth will improve to about 3% in 2020, from about 1% last year.

For now, that forecast assumes the truces between the U.S. and major trading partners
remain in place, and that a number of big emerging markets like Brazil, Mexico, India
and Russia experience economic improvements. Bolstering those forecasts, global
manufacturing data showed signs of stabilizing early this year.

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But that outlook was largely formed before the coronavirus outbreak in China added a
completely new sort of uncertainty to global trade in 2020. The virus is likely to cause
at least some disruption to supply chains and trade as health officials around the world
work to contain its spread.

And with the U.S. also retaining tariffs on nearly $370 billion a year of Chinese imports,
it may be too soon to say the global trading environment will improve.

“While Vietnam, for example, may be winning some new factories, a downturn in U.S.-
China trade and the rising tide of protectionism globally are big negatives,” said Ben
Bland, director of the Southeast Asia project at the Lowy Institute.

—Anthony Harrup in Mexico City, Paul Hannon in London and Megumi Fujikawa in
Tokyo contributed to this article.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Feliz Solomon at

feliz.solomon@wsj.com

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