How U.S.-China Trade Dispute Is Reshaping Global Trade Flows

Two years into the trade dispute between the U.S. and China, the winners and losers of this new wave of protectionism are emerging more clearly.

More specifically, the trade dispute is shifting trade flows away from the world’s two economic superpowers and toward new export powerhouses like Vietnam, Thailand, Mexico and Brazil, and hurting farmers and industrial goods makers in the U.S. and China.

Overall, the biggest casualty of the trade dispute appears to be the global economy, which suddenly can no longer benefit from the free-trade consensus that has reigned in ministries throughout the world since the end of World War Two.

The growth in world trade fell to only 1% last year, a decline from 4% in 2018 and 6% in 2017. That’s the fourth worst progression in the last 40 years. That should be no surprise. The U.S. and China are the world’s two great national consumer markets. With over $4 trillion a year in combined imports, they are juicy targets for companies around the world. As they’ve started saying no to each other with higher tariffs, that’s opened doors for companies in other countries to flood their markets with lower prices.

Among the biggest losers are the U.S. and Chinese sectors targeted by trade officials with duties and other restrictions. For example, Chinese imports of U.S. aircraft and aircraft parts fell to $7.1 billion from $14.9 billion between 2017 and 2019, according to Trade Data Monitor, the world’s premier source of trade data. One winner from the change in sourcing is France. Chinese imports of aircraft and aircraft parts from France increased to $7.1 billion from $6.2 billion in 2017.

Another sector that’s been badly hurt is U.S. agriculture. Over two years, imports of American soybeans to China fell to $6.6 billion in 2019 from $13.9 billion in 2017. China has replaced that with shipments from other countries, making winners out of farmers in Brazil. Shipments from the Latin American country increased to $23 billion in 2019 from $21 billion in 2017.

Soybeans are part of a wider trend. Overall, Chinese imports from the U.S. declined to $122.7 billion in 2019 from $150.4 billion in 2017. Shipments from Brazil increased to $79.7 billion from $58.4 billion.

In the other direction, U.S. imports from China declined to $452.2 billion in 2019 from $505.2 billion in 2017. That made winners out of the U.S.’s other top trading partners. Germany, Mexico, Canada, Japan, South Korea and Vietnam all increased their market share in the U.S. over that time. The biggest beneficiary was Vietnam, as Chinese firms move there to take advantage of lower labor costs. Remarkably, the U.S.’s former adversary is now its 7th biggest supplier of goods, up from 12th in 2017.

U.S. imports of goods from Vietnam ballooned to $66.7 billion in 2019 from $46.5 billion in 2017. The biggest increases were consumer goods, including apparel, cellphones and other communications gear. U.S. furniture imports from Vietnam, for example, increased to $7.7 billion from $4.7 billion.

Markets, and international institutions, are assuming that trade officials in Beijing and Washington will make headway this year in diluting trade tensions. The International Monetary Fund says growth in trade will improve to around 3% in 2020. That said, the U.S. still has tariffs on over $300 billion a year of Chinese imports.

And then are plenty of uncertainties, such as the Coronavirus outbreak and potential political instability around the 2020 election in the U.S. One thing that becomes clear in analyzing trade statistics is that these numbers can swing for reasons that have nothing to do with tariffs. For example, as African swine fever killed pigs in China, demand for soybeans fell, hurting prices and denting the surge in Brazilian soybean shipment. The market always has the final word.