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    Chinese workers stand on a pier before a cargo ship at a port in Qingdao, east China's Shandong province on April 13, 2017

    Europe, Australia Will Be Collateral Damage in US-China Trade War – Economist

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    Trade experts speaking to CNBC have warned that Donald Trump's tariff threats against China may end up boosting Beijing's economic clout via its Belt and Road Initiative. Speaking to Sputnik, Dr. Yixiao Zhou, an economist who coauthored a study on the possible trade war between the US and China, explained its likely knock-on effects.

    Sputnik: Who benefits the most from the ongoing global tariffs war?

    Yixiao Zhou: Based on the research by myself and my coauthor at the University of West Australia, we've found that the trade war will actually impact negatively on not only the US and China but also third countries like Australia and Europe. Basically our view is that no one will benefit from the trade war itself.

    Sputnik: In your view, have the latest trade disputes with the US helped to strengthen China's trade relationships with other countries?

    Yixiao Zhou: In the short run, there is a possibility of trade leakage; so if say China doesn't export as much to the US, it may actually try to export more to other countries. The Belt and Road Initiative may help in expanding China's linkages. But that will happen if the Belt and Road initiative will be successful.

    However, it's possible that the US and China's trade war may become an all-out trade war, where both sides not only impose tariffs on each other, but impose tariffs on other countries…That will actually block the trade leakage that might happen. So in the worst case scenario, in an all-out trade war, no country will benefit.

    Sputnik: With regard to the One Road One Belt Initiative you mentioned, is the trade conflict with the US going to affect the development of this project, and if it does, in what way?

    Yixiao Zhou: Like you pointed out earlier, if third countries find that US commitment to free trade becomes weaker, they might rely more on China for exports or for trade activities. Under the Belt and Road Initiative, these linkages may strengthen, and that will help with the trading activities between China and these third countries. 

    So I do think that the Belt and Road initiative will help compensate the drop in trade activities between China and the US, and also between third countries and the US. But still, a trade war between the two powers will have a negative impact overall…

    Sputnik: We were speaking earlier to a professor from the City University of Hong Kong, and asked him what the general feeling was in China with regard to a potential trade war. He said that generally, the Chinese people, Chinese businesses are very confident. They feel that they would be able to sustain their position in any trade war and possibly even be winners in it. Is that your sense, speaking to colleagues back in China?

    Yixiao Zhou: Personally, I've found that there's a mixed feeling. On the one hand, you're quite right that people feel optimistic that when the US turns its back on free trade, China can take a more important role [in world trade] with the Belt and Road Initiative.

    We think that the underlying conflict between the US and China is actually China's technological catch-up to the US, and China's Make in China 2025 initiative. That's what the US is feeling nervous about.

    But in China there is this feeling that maybe the trade war is an opportunity to be more innovative by itself, and to rely less on the trade relationship with the US, and more on trade with other countries for development and for growing into an innovative economy in the future. That's on the positive side. There is definitely this confidence within the people in China. I agree with that observation by the Hong Kong professor.

    On the other hand, in China there is also concern that the drop in trading activities with the US will cause a drop in exports from China toward advanced economies. The export of steel is quite an important engine for growth in China. That will exert a negative impact, at least in the short run, on growth in the economy.

    So to me it's a mixed feeling, and this deterioration still exerts some concern on people in China; because ultimately, China hopes to rise to power in a peaceful environment, on good terms with other countries, to maintain a good trade and investment relationship between itself and other countries.

    Dr. Yixiao Zhou is a lecturer of economics at the Curtin Business School at the University of Perth, Australia. The views and opinions expressed by Dr. Yixiao Zhou are those of the speaker, and do not necessarily reflect those of Sputnik.

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    trade restrictions, expert analysis, consequences, tariffs, trade relations, trade, Donald Trump, China, United States
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