“US import substitution has benefitted Vietnam, Taiwan and Korea in electronics products; Malaysia in semiconductors; and Korea and Mexico in motor vehicle parts. China’s import substitution, has led to beneficiaries in copper (Chile), soybeans (Argentina, Brazil, Chile and Canada); gold (Singapore, Hong Kong and South Africa); natural gas (Malaysia, Australia); and aircraft (France and Germany),” the report says.
The study covers US tariffs on $250 billion worth of imports from China and Chinese tariffs on $110 billion worth of imports from the US. Basis this, Nomura
sees evidence of US and China import substitution in 52 per cent of the 1,981 tariffed products.
Though the substitution effect may be small in relation to the size of US and China GDP, analysts at Nomura believe that going ahead, the development can give a substantial boost to exports of third-party countries with smaller economies.
The report pegs Vietnam as the biggest beneficiary, gaining 7.9 per cent of GDP (gross domestic product) from trade diversion, followed by Taiwan (2.1 per cent of GDP), Chile (1.5 per cent), Malaysia (1.3 per cent) and Argentina (1.2 per cent).
For India, the benefit is pegged at 0.2 per cent of 2019 GDP. Petrol, bitumen mineral, articles of cement, concrete or stone, parts and accessories from motor vehicles, taps, valves, pipe tanks carpets and other textile floor coverings are some of the products where India stands to gain.
‘COLD WAR’ IN TECHNOLOGY
A major risk for the US, according to the Nomura, is the likely impact on the electronic products it sources from China. If the US follows through on 25 per cent tariffs on the remainder of $325 billion worth of products and if the US business restrictions on China’s Huawei and ZTE technology companies escalate into a ‘cold war’ (in technology), the impact on US companies could be severe.
“A striking statistic is that from US listed companies in the S&P 500, 12 of the top 20 with net sales in China are electronic companies with combined revenue of $144 billion in 2018. That is larger than US total merchandise exports to China of $120 billion in 2018,” the report says.
Apple Inc, Intel Corp, Micron Technology, Qualcomm, Texas Instruments, Applied Material and Western Digital are some of the US impacted companies, Nomura says, that had 19 per cent to 45 per cent share of sales to China as a percentage to their total sales in 2018.