Blog Post

Trade war: How tensions have risen between China, the EU and the US

The multilateral trading system has been challenged by unilateralist measures and subsequent threats of retaliation. We collect the main events that have shaped the current situation and show which trade flows have been and will potentially be affected by the various measures. We end by discussing possible scenarios moving forward for the EU.

By: Date: May 15, 2018 Topic: Global Economics & Governance

Since the beginning of the year, the multilateral trading system has been challenged with a number of decisions and announcements on tariffs. The trade conflict between the United States and China may be escalating, while the European Union finds itself in a precarious position in responding to the US’ challenges.

So what has and what has not yet happened this year? We focus on the measures taken and announcements made by China, the EU and the US in terms of trade policy. Here is the timeline:

The result of those is the looming prospect of continuous trade restrictions and retaliation measures involving a variety of products. Apart from steel and aluminium, the US targeted over 1,300 imported Chinese products worth around $50 billion, possibly aiming at China’s high-tech and industrial sectors.

China announced discontinuation tariff concessions for 128 products and a longer list of its own (also worth approx. $50 billion), focusing more on lower-end products, while the EU has a two-part list of products imported from the US that it could target if the US moves forward with steel and aluminium tariffs (worth approx. $7.5 billion, of which $3.2 billion from Part A, and $4.3 billion from Part B), targeting very “American” goods from specific regions.

Here is a table on which trade flows are mainly affected. The affected numbers are in red.

Table 1: Trade value of main products possibly affected by announced/implemented tariff schemes (billion USD)

Source: USITC, Eurostat, Comtrade.
Note: Product categories selected up to the 8-digit code where possible, otherwise the 6-digit aggregate is used. Product lists retrieved from the Office of the U.S. Trade Representative (USTR), China’s Ministry of Commerce (MOFCOM), and DG Trade. Data for 2017, except for US exports to China of products affected by China’s proposed retaliation list (2016 data).

The four charts below depict the network of international trade flows between China, the EU, and the US for different categories of goods (steel and aluminium targeted by US tariffs, the US list of products, China’s long list of products, and the EU’s total list of products). The thickness of the bilateral linkages is proportional to trade value, and highlighted are those (potentially) affected by the announced/implemented tariff schemes.

Figure 1: Network of bilateral trade flows – China’s list

Figure 2: Network of bilateral trade flows – Steel and aluminium

Figure 3: Network of bilateral trade flows – US’ list

Figure 4: Network of bilateral trade flows – EU’s list

The charts show how much is being exported of each of the goods that would be affected by tariffs. Imagine for a moment that a good is perfectly substitutable.

For example, the goods exported from China to the US that would be affected by the US list amount to $46 billion. China exports $81 billion-worth of the same kind of goods to the EU. Chinese producers could compensate for a 10% reduction in Chinese exports to the US, due to the tariff, if they were able to increase their exports to the EU by only some 5%. In turn, the EU could compensate for the newly arriving supply from China by increasing its exports to the US by only 2%.

In the event of a full-fledged China-US trade war, trade diversion constitutes a risk to the EU, as the redirection of flows towards the EU may cause an impairment of the position of local industries. Furthermore, greater protectionism may also induce higher production costs and a slowdown of Global Value Chain participation (through the channel of intermediate goods), possibly affecting technology diffusion and productivity growth. However, such a crisis might also bring opportunities for EU industries if there is production and innovation capacity to cover the void left by tariff schemes. Thus, one of the key questions is to what extent the goods affected by bilateral tariffs are substitutable and can somehow be shifted around to other destinations.

In practice, the raising of bilateral tariffs will likely create substantial distortions for the global economy that would also affect the EU, bringing some opportunities but also creating costs for industries. However, a deal between the US and the EU could also have negative consequences for the EU as new trade could be created and the EU would potentially lose access, at least in relative terms. It is time for the EU to reflect on its options in global trade, and to reduce the vulnerability of its industries to the global challenge that Trump and China pose.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic

Opinion

Sticks and carrots from China’s leadership to Chinese banks

The takeaway from the 13th National People's Congress (NPC) is clear: under the current economic downturn, Chinese authorities will do whatever it takes to support the real economy. Alicia García Herrero and Gary Ng reflect on the "sticks snd carrots" approach to Chinese banks.

By: Alicia García-Herrero and Gary Ng Topic: Global Economics & Governance Date: March 21, 2019
Read about event More on this topic

Upcoming Event

Mar
26
12:30

Spitzenkandidaten series: Yanis Varoufakis

The first event in the The Road to Europe - Brussels Briefing Live: Spitzenkandidaten series. The series features the lead candidates for the European Elections of six parties and is jointly organised by Bruegel and the Financial Times in March and April 2019.

Speakers: Maria Demertzis, Martin Sandbu and Yanis Varoufakis Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Past Event

Past Event

The trade crisis: good and bad scenarios and the EU's response

What role will the EU play in the resolution of the global trade crisis?

Speakers: Uri Dadush, Maria Demertzis and Denis Redonnet Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 20, 2019
Read article More on this topic More by this author

Opinion

China’s debt is still piling up – and the pile-up is getting faster

With looser monetary policy, China's policymakers hope to encourage banks to lend more to the private sector. This seems to imply a change from the deleveraging drive begun in mid-2017. Although this should be good news for China's growth in the short term, such a continued accumulation of debt cannot but imply deflationary pressures and a lower potential growth further down the road.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: March 19, 2019
Read about event More on this topic

Upcoming Event

Apr
2
12:30

Spitzenkandidaten series: Bas Eickhout

The second event in the The Road to Europe - Brussels Briefing Live: Spitzenkandidaten series. The series features the lead candidates for the European Elections of six parties and is jointly organised by Bruegel and the Financial Times in March and April 2019.

Speakers: Bas Eickhout, Guntram B. Wolff and Rochelle Toplensky Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Apr
3
12:30

Spitzenkandidaten series: ALDE

The third event in the The Road to Europe - Brussels Briefing Live: Spitzenkandidaten series. The series features the lead candidates for the European Elections of six parties and is jointly organised by Bruegel and the Financial Times in March and April 2019.

Speakers: Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Opinion

New EU industrial policy can only succeed with focus on completion of single market and public procurement

France and Germany recently unveiled a manifesto for a European industrial policy fit for the 21st century, sparking a lively debate across the continent. The fundamental idea underpinning the manifesto is a good one: Europe does need an industrial policy to ensure that EU companies remain highly competitive globally, notwithstanding strong competition from China and other big players. However, the Franco-German priorities are unsuitable for the pursuit of this goal.

By: Simone Tagliapietra Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: March 18, 2019
Read about event More on this topic

Upcoming Event

Apr
4
08:30

Spitzenkandidaten series: Jan Zaradhil

The fourth event in the The Road to Europe - Brussels Briefing Live: Spitzenkandidaten series. The series features the lead candidates for the European Elections of six parties and is jointly organised by Bruegel and the Financial Times in March and April 2019.

Speakers: Jim Brunsden, Maria Demertzis and Jan Zahradil Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Apr
9
12:30

Spitzenkandidaten series: Manfred Weber

The fifth event in the The Road to Europe - Brussels Briefing Live: Spitzenkandidaten series. The series features the lead candidates for the European Elections of six parties and is jointly organised by Bruegel and the Financial Times in March and April 2019.

Speakers: Anne-Sylvaine Chassany, Manfred Weber and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Apr
11
12:00

Spitzenkandidaten series: Frans Timmermans

The sixth event in the The Road to Europe - Brussels Briefing Live: Spitzenkandidaten series. The series features the lead candidates for the European Elections of six parties and is jointly organised by Bruegel and the Financial Times in March and April 2019.

Speakers: Frans Timmermans and André Sapir Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF More on this topic

Policy Contribution

The European Union’s response to the trade crisis

The global trading system is under attack on various fronts. In this Policy Contribution, the authors examine the root causes of the current problems, develop good and bad scenarios for what could happen next, and provide recommendations for how the EU should respond.

By: Uri Dadush and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 14, 2019
Read article Download PDF More on this topic

External Publication

Towards EU-MENA shared prosperity

This joint publication collects the papers produced as part of the third collaboration between Bruegel and the Policy Center for the New South (PCNS). Within the theme “Towards EU-MENA Shared Prosperity”, the two organisations launched a “Platform for Advanced & Emerging Economies Policy Dialogue” in Rabat on 1 April 2016, addressing issues of common interest in the Mediterranean and the MENA Region.

By: Abdelaziz Ait Ali, Uri Dadush, Yassine Msadfa, Yana Myachenkova and Simone Tagliapietra Topic: Global Economics & Governance Date: March 14, 2019
Load more posts