With the US-China trade dispute escalating further, we have returned to our previous analysis on export similarity to gauge the potential winners from a prolonged trade war. China’s exports are predominantly low-to-medium tech, which indicates a potentially high degree of price elasticity and substitutability with its competitors.

We have compared exports of 255 different product groups using the three-digit SITC commodity classification to construct an export similarity index (where a value of 1 indicates that a country has an identical export basket to China). The top chart shows that Taiwan, Hong Kong, Thailand and Mexico are China’s nearest competitors in the US export market and could stand to benefit in the immediate term from US restrictions on Chinese goods (assuming that these countries do not also become US targets). China also has competitors in non-US markets that could seek to capitalise on the trade war by exporting to the US. Using our export similarity metric, these include the Czech Republic, Thailand, Italy and Vietnam (bottom-left chart). Given that Italy and the Czech Republic could be caught up in EU-wide tariffs, we see more scope for Thailand and Vietnam to capitalise on the US-China trade war.

(Click on image to enlarge.)

Source: Bloomberg, Macrobond and Variant Perception