This year, the U.S. and China have imposed hundreds of billions of dollars worth of tariffs on each other. We asked experts around the Global Network for Advanced Management how the trade war is affecting economies and changing patterns of trade in their regions.
Australia
Tim Harcourt, JW Nevile Fellow in Economics, UNSW Business School
There is an upside for Australia. As the White House remains chaotic, Australia will be increasingly seen as a stable and reliable economic partner to Asia and our engagement with the region will grow. Australia is a member of APEC and the Trans Pacific Partnership (minus the USA) and we have free trade agreements with China, Japan, South Korea, ASEAN and are signing a comprehensive partnership with Indonesia as well along with agreements with Chile, Peru and soon the Pacific Alliance.
Canada
James Brander, Professor of Strategy and Business Economics, UBC Sauder School of Business
Who are the biggest trade partners for your country? Is this shifting?
For Canada, our biggest trading partner has been and continues to be the United States, and this is not likely to change for the foreseeable future. Our second largest trading partner is now China, and we expect that our trading relationship with China, and Asia overall, will continue to grow in the coming years.
Are the trade disputes between the U.S. and various countries affecting the way that businesses are operating in your region?
This is an interesting question, businesses in our region are certainly concerned and taking notice of the current trade disputes that the U.S. is involved in, the biggest concern being the potential of a trade war between the U.S. and China. They are nervous, but so far, they are not taking action and are generally in a “wait and see” mode.
There was a lot of relief when the USCMA (former NAFTA) was resolved. The deal has made businesses take a closer look at supply management, and economists have been advocating for more reform in this area, but we haven’t seen any significant changes on this front.
There was a lot of attention focused on the dairy industry during the negotiations, but it actually wasn’t affected that much in the end – it’s pretty much business as usual. The changes we did see were small, and we don’t see the renegotiations making much of an impact. The dairy industry is evolving, but this is more a result of economic trends in general rather than the influences of the USCMA/NAFTA deal.
There was also a lot of talk about how the deal would affect intellectual property, but the changes to this area were also small. The result of renegotiations left intellectual property in a very similar state to what it was before, the result being fairly good for Canada.
The most important part of the deal was related to the auto sector, and mainly between the U.S. and Mexico. One interesting outcome in this sector was the resulting defacto minimum wage, which in Canada we are already exceeding, so if anything, it will help Canadian producers while making it more difficult for Mexico to compete. There was also a modest increase in regulations concerning domestic content, but this will not have a substantial effect. In terms of the Canadian auto industry, NAFTA renegotiations have not harmed it, and if anything they have helped the industry overall.
India
Rupa Chanda, RBI Chair Professor in Economics, Indian Institute of Management Bangalore
The changing pattern of India’s trade has important implications. It suggests that if India can strategically leverage its Free Trade and Comprehensive Partnership Agreements, a growing number of which are with Asian countries, it can expand its exports to the Asia-Pacific region and integrate with “Factory Asia.” The shift towards value-added exports indicates the growing role of factors such as standards, innovation, skilling, and technology as opposed to low labor costs as a source of competitiveness. India’s strength in services exports suggests that focus on behind-the-border regulatory barriers and diversification of the services export basket, destination markets and modes of supply are needed if the country’s services potential is to be sustained.
Mexico
Jorge Velarde, Director of Academic Programs, EGADE Business School
The trade war clearly generates uncertainty in Mexico, but we must also be on the lookout for a possible restructuring of China’s foreign direct investment (FDI) in Mexico, seeking better trade conditions and even the new benefits that would be offered by the recently agreed USMCA, which could to some extent offset the economy’s vulnerability to the trade conflict.
Singapore
Alex Capri, Visiting Senior Fellow, Department of Decision Sciences, NUS Business School
United States
Lorenzo Caliendo, Professor of Economics, Yale School of Management
Who are the biggest trade partners for your country? Is this shifting?
Over the last decade the U.S. has increased trade with its biggest trading partners. In the year 2007 the top three trading partners (in terms of total trade, exports and imports) of the U.S. were Canada, China, and Mexico. Trading with these countries represented 41.5% of total U.S. trade. Today, these same countries are the largest trading partners, and total trade with these countries represent 45% of total trade. Both export shares and import shares have increased with these countries since 2007. Today, 41.9% of total U.S. exports and 47% of U.S. total imports are with these countries.
Are the trade disputes between the U.S. and various countries affecting the way that businesses are operating in your region?
The trade disputes are not likely going to change the importance of these three trading partners. Almost half of total trade of the U.S. is with these set of countries and these countries are important suppliers of intermediate and final goods into the U.S. The key challenge for global firms in an environment with uncertain trade disputes is how to cope with it. So far we have not seen large disruptions in global supply chains. However, if trade disputes escalate, how to manage the global supply chain (where to source intermediate goods from and to) can become a major operating challenge.