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Apr 12 2018

In a Trade War, Size Matters

The full version of this report was released to ECRI clients on Apr 4, 2018 -

Our cyclical research offers nuanced insights into the probable impact of current events, including what is transpiring with global trade. Separately, knowing what movements in trade are likely cyclical, we are better able to discern the structural conditions that make some countries more vulnerable to a trade war.

Right now, with the two largest economies in the world involved in a game of trade-policy brinkmanship, the potential fallout from a trade war is increasingly a matter of concern. This is because most major economies are now much more export-dependent than at the beginning of this century.

The two notable exceptions are the U.S. and China. While the U.S. has gradually become more export-oriented (chart, blue line), it is much less so than other major developed economies (not shown). Meanwhile, China has become considerably less export-dependent in recent years, as its export share of GDP peaked in 2006 at over 37% and is now just under 20% (gold line).

Therefore, China and the U.S. are relatively better positioned to deal with the potential damage from a trade war – but still remain vulnerable. And, even though China is less export-dependent than it used to be, the U.S. remains China’s single biggest export destination.
Ultimately, however, the outcome of trade negotiations will have no bearing on the cyclical direction of exports. Instead, the near-term direction of export growth for each country will be determined by the cyclical drivers of exports that constitute ECRI’s leading export indexes, making them even more important to monitor in coming months.

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