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As another round of talks between the US and China wrapped up last week, the United Nations Conference on Trade and Development (UNCTAD) has revealed some unlikely winners and losers from the ongoing trade war.

In a report out Monday, the UN body says that neither the US nor China is profiting from the current tensions. It says that of the US$250bn in Chinese exports that are subject to US tariffs, only about 6% will be picked up by US firms, while of the US$85bn in US exports that are subject to China’s tariffs, only about 5% will be taken up by Chinese firms.

The report, titled The Trade Wars: The Pain and the Gain, points out that bilateral tariffs “alter global competitiveness to the advantage of firms operating in countries not directly affected by them”, and says that countries that are expected to benefit the most from US-China tensions are those which are more competitive and have the economic capacity to replace US and Chinese firms. As a result, if US-China talks fail to produce a deal by the March 1 deadline, UNCTAD finds that it is European Union member states who will benefit the most, with exports in the bloc likely to grow by US$70bn. Japan and Canada, meanwhile, will see exports increase by more than US$20bn each.

Other countries set to immediately benefit from the trade tensions include Australia, with 4.6% export gains, Brazil with 3.8%, India with 3.5%, Philippines with 3.2% and Vietnam with 5%.

In the long run, the picture looks slightly different. In a research note, Sian Fenner, lead Asia economist at Oxford Economics, says: “We estimate that trade diversion effects caused by the US-China trade war could potentially amount to around US$147bn, with Asia ex-China likely to see the biggest gains, at least in the long term.” She adds that this will only come about, though, if these countries are able to put manufacturing capacity in place. “In the short run, however, production capacity constraints will likely limit any of these benefits, and still be outweighed by the wider losses caused by the trade disruption,” says Fenner.

The UNCTAD study underscores that even for countries whose exports are set to increase because of the trade sparring, not all the results will be positive. “While some countries will see a surge in their exports, negative global effects are likely to dominate. A common concern is the unavoidable impact that trade disputes will have on the still fragile global economy,” says the UN. One major concern is the risk that trade tensions could spiral into currency wars, making dollar-denominated debt more difficult to service.

“The big loser is global trade and the global economy,” Rebecca Harding, CEO of Coriolis Technologies and trade economist, tells GTR. “This isn’t just about trade; it’s about the whole environment around trade, the political environment around trade, and it is the extent to which trade is now being held hostage to a more bilateral agenda.”

Little progress on tech and IP issues

Although the official line from the Trump administration remains that the two sides are making “tremendous progress” in resolving a range of issues, onlookers still aren’t banking on any meaningful improvements. A key sticking point is around topics relating to forced technology transfers and intellectual property violations, which have seen the US make an example out of telecommunications giant Huawei, accusing it of conspiracy to steal the intellectual property of an American company, among other charges.

“We are feeling a lot of optimism from the White House communications team and the US trade representative that they are making progress, but we in the private sector are not getting any sense that they are making meaningful progress on the nuts and bolts of the IP and tech transfer issues,” says Welles Orr, international trade advisor with law firm Miller & Chevalier and former assistant US trade representative.

If agreements are only reached on trade but not technology by the March 1 deadline, electronics trade from China will be the stand-out among casualties. “In this case, there will be increasingly more developed economies, or even emerging economies, trying to ban the use of China-made electronic components and goods. That will hurt the production sector of electronics in China,” says Iris Pang, economist for Greater China at ING in a note.

While at face value this would seem to indicate that other Asian electronics producers should be able to step in, in reality, the probability of electronic goods trade flows being deflected to other trading partners looks weak. According to Oxford Economics, China accounts for nearly 22% of US telecommunications imports. Its closest challenger, Vietnam, only accounts for 1%. “This suggests that Asian countries will face some capacity constraints in the short term, limiting any boost from possible trade diversion effects. Moreover, any benefits will be even lower if China reduces prices in the short term in the face of falling demand for its goods, or the government introduces more export subsidies,” says Fenner at Oxford Economics.

Indeed, the UNCTAD study also warns that the spat could hit East Asian producers the hardest, with a projected US$160bn contraction in the region’s exports unless discussions between China and the US are resolved before the March deadline, largely as a result of tariff increases penalising not only the assembler of a product, but also suppliers along the chain.

“Getting the Chinese to make meaningful commitments on IP enforcement and tech transfer is the crux of what would make up a deal and what the Trump administration could call a win. But that is going to take a long time, and certainly more than the next several months,” says Orr.

No date has been set for further rounds of talks between the two sides, but with a truly comprehensive trade pact seen as near-impossible to reach ahead of March, the diversionary impact on global trade of the trade war is becoming increasingly apparent.