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Trade war trinity: analysis of global consequences

Analysis of the long-term impact of the trade war and its three key players: EU, US, and China.


Carl B Hamilton

Special Adviser on Trade Policy to Commissioner Malmström and Professor, University of Stockholm,

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The event started with a presentation by Alicia García-Herrero, who highlighted that the US is aiming at containing China with a variety of measures, including trade tariffs. The US mainly targeted high-end products, while China low-end ones. She argued that the US wants to hurt China’s high-tech sector while protecting its consumers, whereas China cannot afford targeting high-end products, especially aircraft. She also pointed out that the US is limiting China’s ability to invest there and buy technology, and that it would be hard for the US to be a threat to China on tax competition.
Focusing on direct impact, she argued that Europe could become the key loser of a trade deal between the US and China, as China would probably divert imports in the EU (a key competitor of several US products). Instead, the EU could gain in relative terms, if China and the US continue with their trade war. Gains in the Chinese market would mostly be related to the motor vehicles sector, while gains in the US market would be more broad-based and larger.
She argued that this is only true if the EU does not take sides. However, for the EU to move away from a one-sided position anchored on the transatlantic alliance, China should offer enough, as the EU still has more to gain from US trade relations than from China’s. She concluded that China may be willing to engage in conversations with the EU about market access and reciprocity, now that the US is acting to contain its rise.
Ignasi Guardans remarked that US actions seem to be driven by political considerations as much as by trade issues, making it difficult to make predictions. He then analysed some major issues, starting from the use of Section 232 for steel and aluminium, as well as potentially for cars. He noted than from a policy perspective, the concept of economic security is very broad and could be stretched, allowing the use of this law to impose restrictions.
He mentioned the US announcement of potential higher duties on Spanish olives (motivated by the argument of below fair value sales, as a result of subsidies). He argued that this could be seen as a direct attack at the EU’s CAP, and that it can potentially become a major issue. Moreover, he focused on the reinforcement of the US CFIUS, aimed at restricting incoming investment (probably affecting EU investments in start-ups). He also mentions the possibility of a tax against Chinese investment.
Finally, he highlighted the conflict at the WTO on the Appellate Body of the dispute settlement panel. The US would not support any re-appointment, affecting the functioning of the body by reducing the number of its members.
Carl Hamilton suggested that perhaps an ambition of the US administration is to undermine the international multilateral system, and to withdraw from all arrangements.
He called for a clearer separation of security and trade issues, and for American institutions to be more protective of the US Constitution and for the Congress to verify more effectively that laws are enforced with original interpretation.
Moreover, he argued that protectionist measures neglect the importance of domino effects due to the increased international fragmentation of production in global value chains.
The discussion highlighted several issues including, among others, the importance for the EU of being united and relatively quick in reaction to global trade issues (also looking at domestic policy along with external policy) and other potential opportunities for the EU (e.g., shifting trade in agricultural products to China).

event materials

Presentation by Alicia Garcia-Herrero