As trade tensions continue to loom over the global economy, can some countries find an advantage, asks Luigi Speranza, Global Chief Economist for BNP Paribas Global Markets, or will everyone lose out?
Can countries outside the dispute step in and find a trade advantage? Or will everyone suffer from the drag on global commerce?
"Can countries outside the dispute find a trade advantage? Or will everyone suffer?"
In a recent report, the European Central Bank (ECB) pointed to the immediate increase in trade costs for China and America because of tariffs, amplified around the world by "complex global production supply chains". Countries not hit with tariffs, including those in the euro area, could hope to take advantage of a temporary trade boost, finding a competitive advantage as both the US and China seek to trade with new partners on more favourable terms.
This, however, is only one side of the equation. While the ECB predicts a boost to trade in the euro area thanks to this diversion effect, this could be more than offset by a decline in sentiment, foreshadowing negative outcome overall.
For countries in the eurozone and elsewhere, sustaining the benefits of trade diversification would require long-term investment in manufacturing to ramp up production and meet the new demand.
But investing this way requires the kind of stability and confidence that is in very short supply in the current geopolitical landscape.
Meanwhile persistent uncertainty with trade policies will exert a drag on business sentiment and investment.
Countries that rely on manufacturing and capital goods exports, such as Germany and Japan, could suffer most from this trend.
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