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Two European countries could be the big winners from the US-China trade war, Barclays says

France and Germany could be the biggest beneficiaries in an escalation in trade tariffs between the U.S. and China, Barclays economists have projected.

U.S. Commerce Secretary Wilbur Ross reiterated on Monday that President Donald Trump is “perfectly happy” to slap tariffs on the remaining $300 billion of Chinese imports if the world’s two largest economies fail to agree a trade deal.

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However, Christian Keller, head of economic research at Barclays, suggested in an analyst note that trade substitution resulting from additional tariffs, and other non-tariff related barriers, opens opportunities for core euro area economies to gain export market share.

Our comparison of China’s import structure across its main trading partners reveals that France, Germany and the U.K. are the closest ‘U.S. proxies’ in terms of relative sectoral decomposition of their exports to China, We would therefore expect these countries to win the most if China opts to shop elsewhere.

Keller’s note said.

Barclays’ new baseline global trade scenario assumes a full-blown trade war which would see the U.S. impose a 25% tariff on “virtually all Chinese imports” and a Chinese retaliation, reducing bilateral trade by around 30%.

Keller’s team expects a trade loss of 0.1% of euro area GDP (gross domestic product) in this instance, based on U.S.-China trade accounting for 1.6% of euro area value added (VA), which represents the difference between the cost of inputs to production and the price of output at any particular stage in the overall production process. However, he suggested this might be offset by trade substitution.

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