Could the US-China trade war be good for UK exports?

The trade war between China and the US has put huge pressure on the Chinese currency and on its import sources. Earlier this month, tensions between the two superpowers reached a new pitch when they hit $34 billion of each other's exports with steep new tariffs. Just days later, the US announced another killer blow, releasing a list of more than 6,000 new items from food to handbags on which they plan to impose a 10% tariff.

So far, it seems China is coming out worst, with China's stock trounced. So what does this mean for the UK and its exports to China?

China is becoming increasingly important to UK exports. The latest figures on UK trade, released by the Department for International Trade last month show that UK exports to China grew by 15.3% in the year to March 2018. This was part of a rosy overall picture for UK exports, which are now at a record high. This, in the view of International Trade Secretary Dr Liam Fox, shows that 'far from the negative forecasts after the EU referendum, there is every reason to be optimistic [about UK trade]'.

The demand for UK goods in China had only seemed set to increase as China's economy grew. Research from Barclays Corporate Banking even found that 57% of consumers in China were prepared to pay more for goods made in the UK because they perceived the quality to be higher.

However, from a neutral view point on the trade war, the figures shows that China is losing and that their economy is already suffering. GDP growth is slowing down, real estate minimizing exchanges and capital outflow has decreased. In comparison, US retail sales have risen for five months in a row and signs show real estate is improving. China doesn't have the capacity to keep up the pace on retaliation against the US.

Despite the negative impact of the US-China trade war on the Chinese economy, however, the trade war could still be positive for UK trade with China. For one, if Beijing fails to lead China through this trade war it will have to become more open to the world.

China already needs the UK to provide products in a variety of sectors to fulfil market demand. For example, a couple of weeks ago China lifted its ban on imported British beef, after more than a decade of suspension, which was first implemented in reaction to the outbreak of mad cow's disease in the UK in the early 1990s.

With the current US office focusing so much of their efforts on the trade war, this might also be an ideal time for the UK to negotiate more beneficial trade deals not only with China itself but also in the pan-Asian area, especially the Middle East and the Indian subcontinent. UK exports to India already grew by 31.8% in the year to March 2018 so this could be a particularly significant opportunity for UK trade.

Twenty-two amendments have recently been made to the Chinese FDI negative instruction list (a list made by the Chinese government to limit Foreign Direct Investment). This demonstrates that the Chinese government is looking for help, which could potentially be a great opportunity for UK businesses looking at the international market. The amendments included, to a varying extent, opening up investment limits in sectors including heavy industry, resource, energy, agriculture and infrastructure. As the trade war continues, related policies will be made. It will be crucial for UK businesses to begin the process of establishing their position in China before it's too late.

Capital outflows from China would likely increase as the trade war progresses. For obvious reasons, the US wouldn't be the first choice for the Chinese to park their capital. If the opportunity is presented, a suitable FDI environment in the UK would raise enormous interest from Chinese capital towards British businesses.

Some commentators might argue that the UK providing help, either in trade, investment or fundraising to China and Chinese capital might potentially increase the chance of the White House slapping tariffs on UK goods. But it's important to bear in mind that, at the end of the day, none of these activities would harm the US. They would only give the UK a better seat at the table with the US to discuss further development and investment in the Pan-Asia region and a head start within the Chinese market when the trade war finally ends.

Siddharth Shankar is a leading expert in trading with Asia and CEO of Tails Trading, an innovative new solution helping UK SMEs to export their goods to Asia. Visit www.tailstrading.com to find out more.