Vietnam is by far the biggest winner, having gained 7.9 percent of its gross domestic product (GDP) from trade diversion from both the U.S. and China tariffs, according to an analysis by Japanese investment bank Nomura. Vietnam is trailed by Taiwan, which has gained 2.1 percent of its GDP from import substitution.
The other top beneficiaries of the U.S.–China trade conflict are Chile, Malaysia, and Argentina, according to the study.
Nomura found evidence of trade diversion since the tit-for-tat tariff war began last year when the Trump administration imposed the first round of tariffs on almost $50 billion worth of Chinese imports in April 2018.
“The escalating trade war between the world’s two largest economies is no doubt negative for the world economy, but one aspect can be positive: the U.S. and China diverting imports away from each other to other countries can benefit some industries in those economies,” Nomura analysts said in a report.
The analysts found that these countries benefited more from U.S. tariffs on Chinese goods than Chinese tariffs on U.S. goods.
The investment bank analyzed the trade flows over the first quarter of last year to the first quarter of 2019. The study covered the U.S. tariffs on a total of $250 billion worth of goods from China, and Chinese tariffs on $110 billion worth of U.S. goods.
“Based on these criteria, we find evidence of U.S. and China import substitution in 52 percent of the 1,981 tariffed products,” the report stated.
U.S. tariffs affected electronic products, furniture, and travel goods the most. There was a substantial import substitution for these products, driven by large corporations’ ability to quickly switch to producers in other countries and away from China.
President Donald Trump earlier suggested that the tariffs would force companies to find new suppliers.
“Many tariffed companies will be leaving China for Vietnam and other such countries in Asia. That’s why China wants to make a deal so badly!” Trump wrote on Twitter on May 13.
In his most recent tweet, Trump said manufacturers were relocating to other places, including the United States, to avoid high tariffs.
“China is subsidizing its product in order that it can continue to be sold in the USA. Many firms are leaving China for other countries, including the United States, in order to avoid paying the Tariffs. No visible increase in costs or inflation, but the U.S. is taking in Billions!” he wrote on June 7.
Additional Tariffs on China
A prolonged U.S.–China trade war will force more companies to shift their supply chain activities out of China.
“Importantly, these results suggest that if the U.S. follows through on its threat to impose 25 percent tariffs on its remaining $300 billion of imports from China, it could lead to substantially more import substitution, given that a much larger proportion of this tranche of imports comprise of electronic products,” said the report.
Meanwhile, Beijing’s tariffs on the United States have resulted in trade diversion mostly in soybeans, aircraft, grains, and cotton. In soybeans, for example, Chinese buyers switched from the United States to Argentina, Brazil, Chile, and Canada.
The trade war between the United States and China escalated in early May after Beijing backtracked on commitments to deliver key structural reforms, prompting Washington to raise tariffs on $200 billion of Chinese goods. The Chinese regime increased tariffs on $60 billion in U.S. goods in retaliation.
Trump will meet with Chinese leader Xi Jinping at the G-20 leaders’ summit in Japan later this month. The president said on June 6 that he would decide whether to impose new tariffs on at least $300 billion in Chinese goods after the summit.
The majority of these imports are consumer goods, mainly electronics, suggesting that there could be more trade wins for Vietnam.
“Vietnam is visibly reaping the benefits of supply-chain migration with strong foreign direct investment (FDI) flows,” Citi analysts said in a report.
In the first five months of this year, FDI approvals surged 69 percent, according to Citi.
However, not all of that can be attributed to the supply chain migration from the U.S.–China trade war, the Citi analysts said, adding that some may also be the byproduct of the ratification of a free-trade agreement with the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a free-trade agreement between Canada and 10 other countries in the Asia-Pacific region. Both agreements were signed last year.