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US-China 'phase one' deal could cost EU nearly $11B in export losses, study says

The "phase one" trade deal between the U.S. and China will likely result in trade diversion effects that could cost the European Union some $11 billion in lost exports, according to the Kiel Institute for the World Economy, or IfW Kiel.

Germany, with its large automotive sector, would be significantly affected, as well as the EU's aircraft manufacturing industries. The think tank attributed this to the asymmetric nature of the agreement, with China agreeing to accept more American goods than it did before as part of the U.S.'s bid to cut its trade deficit with the East Asian country.

By 2021, China could double the value of goods it imports from the U.S., amounting to about $95 billion more than it did in 2017, IfW Kiel said. "The additional imports of U.S. goods promised by China will divert imports from other countries," said IfW Kiel President Gabriel Felbermayr.

According to calculations by Felbermayr and trade expert Sonali Chowdhry, Chinese imports of U.S. manufactured goods are set to increase by almost $33 billion in 2020 and by nearly $45 billion in 2021 compared to 2017 levels.

This increase could threaten the EU's share of the Chinese market, with goods from the European bloc accounting for about 20% of manufactured imports into China. In particular, "a very high proportion" of Chinese imports of medicines, vehicles, aircraft and medical equipment come from the EU, and increased U.S. shipments to the Asian country could mean lost market share for European manufacturers in these sectors, Felbermayr and Chowdhry said.

As a result, EU exports to China would fall by an estimated $10.8 billion in 2021, with the trading bloc bearing about one-sixth of the overall trade diversion due to the "phase one" deal. Losses for EU aircraft manufacturers could come in at $3.7 billion, automakers could lose $2.4 billion, and industrial machinery exporters could take a $1.4 billion hit. China-bound exports of the aircraft, automotive and pharmaceutical sectors could go down 28%, 7% and 5%, respectively.

Total U.S. exports to China are set to increase by about 48% in 2021, while the EU and other countries would lose 5% of their business with the Asian country on average, according to IfW Kiel. The think tank added that an estimated 326% jump in U.S. energy exports to China, as well as the expected expansion of U.S. agricultural exports' market share in the country to 25% from 18%, threaten other energy and agricultural exporters around the world.

"The agreement is also a further blow to the World Trade Organization because it undermines its basic principle of non-discriminatory trade and relies instead on bilaterally agreed trade volumes," Felbermayr said.