France & Germany could benefit from US-China trade war

The biggest beneficiaries in an escalating trade tariffs war between the US and China could be France and Germany, economists at Barclays have projected. 

On Monday, the US Commerce Secretary Wilbur Ross said again that President Trump would be "perfectly happy" to put further tariffs on the remaining $300-billion worth of imports from China in the case that a trade deal cannot be agreed upon between the world's two largest economies. 

The head of economic research at Barclays, Christian Keller, has suggested that opportunities could be created for European economies to gain export market share as a result of trade substitution should additional tariffs occur.

An analyst note written by Mr Keller said: “Our comparison of China’s import structure across its main trading partners reveals that France, Germany and the UK are the closest ‘US proxies’ in terms of relative sectoral decomposition of their exports to China.”

“We would therefore expect these countries to win the most if China opts to shop elsewhere,” he added.

The global trade scenario being used as a baseline by Barclays is that the US has imposed a 25% tariff on "virtually all Chinese imports", and that China has retaliated, thus reducing bilateral trade by some 30%.

While Keller and his team expect a trade loss of 0.1% of euro area GDP, it could be offset by trade substitution.

China's largest imports, by sector, from the US are transport equipment, chemicals and electronics.

“Assuming market leaders in each sector would benefit the most from a 30% US exports reduction, we estimate that the (euro area) could increase its exports to China by 0.1% of GDP, particularly in the automotive and, to an extent, the chemicals sectors,” the note went on.

Mr Keller's comments were echoed by Ewald Nowotny, the governor of Austria's central bank and an ECB Governing Council member. 

In an interview with CNBC, Mr Nowotny said of the repercussions of a US-China trade war: “The euro zone is affected like everybody else but again in a trade conflict (between) China and the US there are a number of options for the euro zone. It might be on the losing side, frankly speaking in some cases it might be on the winning side. So, this depends very much on the specific perspectives.” 

With the bulk of euro area exposure focused in Chinese exports of computers, electronics and electrical equipment and US exports of transport equipment, the region’s exposure to the trade war, and willingness to accommodate Chinese export diversions, could have “important political repercussions, particularly in light of faltering US-EU trade negotiations,” Keller projected.

Barclays has also predicted that negative sentiment in Europe will have a far greater impact on the economy there and sees the Eurozone "sailing into industrial recession" based on sliding industrial output and dwindling business confidence. 

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