US trade war could divert Chinese goods to EU markets: analysts

The European Union may have expressed some relief at Trump's decision on Wednesday to suspend his threat to slap swingeing customs duties on foreign goods entering the United States.

But that 90-day moratorium does not apply to US imports from China, which leaves Europe with the question as to where the Asian giant will offload the stocks it previously sold to the US market.

The 27-nation EU is among dozens of economies to which a baseline US tariff rate of 10 percent now applies.

By contrast, Chinese exports to the United States face a 145-percent levy, which puts many of these products out of reach for less wealthy Americans.

China might therefore seek to sell these goods in Europe -- even if it means slashing prices.

That, some analysts say, would undermine European industries that are already struggling with Chinese competition.

"This shift could lead to new trade routes and more complex international supply chains," said Daniela Sabin Hathorn, senior market analyst at Capital.com.

"Companies might begin rerouting Chinese goods... to avoid the US tariffs."

French President Emmanuel Macron has already pointed to the risk.

On Thursday he said the EU had to take account of the indirect consequences of Trump's decisions.

"The tariffs on China are huge... There's a potential risk that some of these products will be diverted, which will clearly affect our economies and unbalance certain sectors and markets," he warned.

On Friday, he urged the EU to protect itself from "flows from third countries".

- Competitive pressure -

The levy on Chinese goods would nonetheless "increase competitive pressure on European industry, particularly in sectors where margins are already very tight", pointed out Anais Voy-Gillis, a geographer specialising in industrial affairs.

The European steel sector "which is already in trouble" could be further "weakened", she said.

She said European manufacturers of aluminium and solar panels -- where China already dominates the world market -- would also be exposed.

The French ministry of industry and energy told AFP chemicals and vehicle parts would be affected too.

Aurelien Saussay, a professor at the London School of Economics, suggested, however, that the "net effect will not necessarily be as massive as one might imagine".

Comparatively, he said, the Trump administration's head-on commercial war on China could "offer the EU an advantage over China for exporting to the United States".

"There are therefore also compensatory effects."

If there were a significant influx of Chinese products, Europe might in turn "react by introducing protectionist policies", said Saussay.

"That's why we've spent the past 80 years avoiding this kind of protectionist offensive," the economist said.

"We quickly get into the logic of retaliation which then becomes very difficult to extricate yourself from."

- Regulation and competitivity -

European Commission head Ursula von red Leyen reacted on Tuesday by stressing "China's critical role in addressing possible trade diversion caused by tariffs, especially in sectors already affected by global overcapacity".

Industry leaders and company bosses have, for their part, urged Europe to remain competitive, focusing especially on "supply-side policies" and "regulatory simplification", Alexandre Saubot, the head of the France Industrie lobby, said on April 3.

EU standards are also useful in that they "protect the European market to a certain extent from inferior quality goods", said Voy-Gillis.

For example, the European market imposes "very high standards" for cosmetics", according to Emmanuel Guichard of the French Beauty Industry Federation (FEBEA).

"Regulation and quality standards means there isn't such a huge risk of Chinese goods flooding the (cosmetics) market," he said.