Continuing to browse our website indicates your consent to our use of cookies. For more information, see our Privacy policy.

Talking Trade blog

US-China trade war: Collateral damage in Asia

Published 09 April 2018

Right now, the primary focus of the looming US-China trade war has been on the pending damage it may cause to American farmers.

This focus may seem peculiar.  After all, the initial action to be taken the American Section 301 case is to raise tariffs against $50 billion in Chinese imports.  Duties are to be lifted by 25% for more than 1000 different types of products to punish the Chinese for a variety of sins, including improper protection of American intellectual property and theft of US technology. 

By slapping these sanctions against Chinese firms engaged in exporting items as diverse as steel, chemicals, dishwashers, train cars and other heavy machinery to the United States, the Americans hope to dissuade other Chinese firms from engaging in unfair trade practices in the future.

The addition of 25% tariffs on these products should raise costs for these goods for the Chinese exporting firms.  So far, there seems to have been limited focus on these companies and the potential harm that will be done to them as their prices will rise on US exports: they will absorb the price increases to keep market share in the US, or they will be forced to seek new markets elsewhere.

Instead, most news stories have focused attention on the damage done to US cherry or soybean farmers. 

Farmers in the United States have gotten caught in the crossfire of the trade war as a result of Chinese retaliation—first with $3 billion in tariff hikes that have already taken effect on US exports to China from prior US Section 232 restrictions on Chinese steel and aluminum, and now with a further $50 billion in tariff increases pending over the $50 billion in Section 301. 

Much of the Chinese retaliation is focused on farm states and farm exports.  This is both because China imports agricultural products from the United States and because politically it makes sense to target “red” states in the United States, making it harder for Republicans to support US President Donald Trump’s plans against China.

What has been missing from the analysis so far is much attention to the harm that will flow through to much of Asia as a result of these thunderbolts on trade.

Given the linkages between firms engaged in regional and global supply chains, it is increasingly difficult to even determine what is a “Chinese” product anymore. 

The original US list of US$50 billion included a wide range of products subject to 25% tariff rate hikes.  Many of the products on this list are made with parts and components that come from all across Asia (and beyond).  For example, the list includes a range of televisions, various other types of heavy equipment, and machinery used in factories of all types.

However, just focus on one category of products now on the tariff list—buses for carrying more than 16 passengers. 

The total number of parts and components on a bus numbers into the tens of thousands, including every element in the motor, frame, chassis, seats, dashboards and so forth.  Many of these items may be made in China, but others are likely imported from across Asia. 

The original $50 billion list is apparently going to expand.  US President Donald Trump has asked for an extra $100 billion in tariff rate hikes.  While the first list largely excluded products aimed at US consumers, the expansion of the list by this magnitude means that it will now reach into many other product categories, like ICT and consumer electronics, clothing and apparel, and household items.  Most Asian firms are tightly connected in these spaces.

In general, the total value added in Chinese exports to the United States from other Asian economies is quite high.  The OECD has estimated that Taiwan’s GDP is more than 2% higher as a result of inputs to the supply chains in China that flow directly onward to the United States.  This includes key elements of ICT products like the iPhone. 

In Singapore, for example, the overall growth rate for 2017 was 3.6%.  A trade war could significantly dent this figure, given dependence on Chinese exports to the US for more than 1% of GDP.  Malaysia is in a similar position.   

Firms across Asia—and not just in the US or China—should be paying careful attention to what happens in the Section 301 case.  USTR is currently accepting comments on the $50 billion list.  Note that firms can have products removed, or added, to the list. 

The comment period is extremely short, with written submissions due by May 11, 2018.

The USTR is looking for comments with respect to any aspect of the proposed action including:

  • The specific products to be subject to increased duties, including whether products listed in the annex should be retained or removed, or whether products not currently on the list should be added.
  • The level of the increase, if any, in the rate of duty.
  • The appropriate aggregate level of trade to be covered by additional duties.

The USTR will post submissions in the docket for public inspection on their website under docket number USTR-2018-0005.  See us at the Asian Trade Centre for more help.  

In short, while firms may think that Section 301 issues matter only to American and Chinese firms, Asian companies need to realize that the impact will ripple outward to the rest of the region quite quickly.  It is not only American soybean farmers at risk of collateral damage from a looming trade war.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

Articles by this expert

View bio

Have any feedback on this article?

contact us