Asia’s small open economies may suffer in America’s trade war

CHINA is the stated adversary in Donald Trump’s incipient trade war. But 30% of the value of the goods China exports to America is added elsewhere. If the row escalates, countries entwined in Chinese supply chains will suffer.

In absolute terms, Japanese suppliers will fare worst. Japan is the country that exports most to firms in China that export onwards to America. But relative to economic size, such suppliers are a bigger part of several small, open Asian economies (see chart). Between 1% and 2% of some countries’ total output is shipped first to China and then on to America. If Chinese exports to America were to fall by 10%—an extreme but not impossible scenario—it could knock 0.1-0.2 percentage points off their economic growth.

China’s competitors in industries that have been threatened with tariffs, namely aerospace, machinery and IT, however, would benefit. There are many of these in Mexico, Germany and Japan. Tariffs also encourage companies to switch their investment plans....Continue reading

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