India Gained $755 Million In Additional Exports To U.S. Due To Trade War
Shipping containers sit stacked next to gantry cranes at the Yantian International Container Terminals. (Photographer: Qilai Shen/Bloomberg)

India Gained $755 Million In Additional Exports To U.S. Due To Trade War

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India gained about $755 million in additional exports, mainly of chemicals, metals and ore, to the U.S. in the first half of 2019 due to the trade diversion effects of Washington's tariff war with China, a study by the United Nations trade and investment body has said.

The study shows that the ongoing U.S.-China trade war has resulted in a sharp decline in bilateral trade, higher prices for consumers and trade diversion effects--increased imports from countries not directly involved in the trade war.

The study puts the trade diversion effects of the U.S.-China tariff war for the first half of 2019 at about $21 billion, implying that the amount of net trade losses corresponds to about $14 billion.

The U.S. tariffs on China have made other players more competitive in the U.S. market and led to a trade diversion effect. These trade diversion effects have brought substantial benefits for Taiwan (province of China), Mexico, and the European Union.

"Trade diversion benefits to Korea, Canada and India were smaller but still substantial, ranging from $0.9 billion to$1.5 billion," it said. The remainder of the benefits were largely to the advantage of other South East Asian countries.

The U.S. tariffs on China resulted in India gaining $755 million in additional exports to the U.S. in the first half of 2019 by selling more chemicals ($243 million), metals and ore ($181 million), electrical machinery ($83 million) and various machinery ($68 million) as well as increased exports in areas such as agri-food, furniture, office machinery, precision instruments, textiles and apparel and transport equipment, United Nations Conference on Trade and Development said.

While it does not consider the impact of Chinese tariffs on U.S. imports, the study indicates that qualitative results are most likely to be analogous: higher prices for Chinese consumers, losses for U.S. exporters and trade gains for other countries.

Of the $35 billion Chinese export losses in the U.S. market, about $21 billion (or 62 percent) was diverted to other countries, while the remainder of $14 billion was either lost or captured by the U.S. producers.

The study found that tariffs imposed by U.S. on China are economically hurting both countries. Consumers in the U.S. are bearing the heaviest brunt of Washington's tariffs on Beijing, as their associated costs have largely been passed down to them and importing firms in the form of higher prices.

However, the study also noted that Chinese firms have recently started absorbing part of the costs of the tariffs by reducing the prices of their exports.

"The results of the study serve as a global warning. A lose-lose trade war is not only harming the main contenders, it also compromises the stability of the global economy and future growth," UNCTAD's Director of International Trade and Commodities Pamela Coke Hamilton said.

"We hope a potential trade agreement between the U.S. and China can de-escalate trade tensions."

The analysis shows that U.S. tariffs caused a 25 percent export loss, inflicting a $35 billion blow to Chinese exports in the U.S. market for tariffed goods in the first half of 2019. This figure also shows the competitiveness of Chinese firms which, despite the substantial tariffs, maintained 75 percent of their exports to the U.S.

The office machinery and communication equipment sectors were hit the hardest, suffering a $15 billion reduction of U.S. imports from China as trade in tariffed goods in those sectors fell by an average of 55 percent.

Though the study does not examine the impact of the most recent phase of the trade war, it warns that the escalation in summer of 2019 is likely to have added to the existing losses, UNCTAD said.

"U.S. consumers are paying for the tariffs in terms of higher prices," said Alessandro Nicita, an economist at UNCTAD. "Not only final consumers like us, but importers of intermediate products firms which import parts and components from China."

Since mid-2018, the U.S. and China have been locked in a trade confrontation that has resulted in several rounds of retaliatory tariffs.

Over the course of 2018, the U.S. administration started implementing a series of trade measures to curtail imports, first targeting specific products (steel, aluminum, solar panels and washing machines) and then specifically targeting imports from China.

In the early summer 2018, U.S. and China raised tariffs on about $50 billion worth of each other's goods. This escalated further in September 2018 when the U.S. introduced an additional 10 percent to cover $200 billion worth of Chinese imports, to which China retaliated by imposing tariffs on imports from the U.S. worth an additional $60 billion.

In June 2019, the U.S. increased the tariffs further, to 25 percent. China responded by raising the tariffs on a subset of products that were already subject to tariffs. In September 2019, the U.S. imposed 15 percent tariffs on a large subset of the remaining $300 billion worth of imports from China not yet subject to tariffs.

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