Trade war fears overblown, for now

President Donald Trump’s proposed tariffs on imports from China have raised concerns of a trade war between the world’s two largest economies. Many fear that this could have knock-on effects on EMs, particularly those which are closely integrated into Chinese supply chains. Asian EMs, which produce components which are assembled in China and then re-exported to the US, would be the most affected. We estimate that the Taiwanese value added embedded in Chinese exports to America, for example, is equivalent to almost 2% of the country’s GDP. But President Trump’s anti-trade rhetoric is (as is often the case) more dramatic than his actual policies. Even were the proposed tariffs to be fully enforced, the hit to even the most heavily-affected EMs (outside China itself) would be tiny. And recent bellicose statements about China have distracted attention from the president’s softer line on both Nafta and the Trans-Pacific Partnership (which he briefly considered re-joining).