China is, probably, one of the biggest losers in the tariff war. However, Xi has refused to accede to the steep demands of the US. He has matched every type of reciprocal tariffs by the US with an equally forceful counter move. Clearly, China stands to lose a lot as it is one of the world’s largest exporters. It is very likely that China will use this tariff war to re-draw its trade patterns and prove to the world the US may dominate the demand; but China dominates supply.

If there is one country with the highest stakes, it is the US. Their leadership of the world is at stake. Today, the US may not wield the same influence in trade as China, but the dollar remains the central currency. If the trade war goes awry, then the US has to face inflation and even a growth slowdown. Above all, the US dollar could even lose its very central role in global trade. For Trump, it is very critical that he gets his tariff narrative right, as the longer China stays obdurate, the greater the chances of the US cutting a sorry figure. Trump has taken a big gamble and needs to come out of the war; all guns blazing! 

We often overlook the EU in this trade war, but this region could be a very important player. Remember, for more than 60 years, Europe has had the best of both worlds. They enjoyed the large markets of the US, their patronage, the support of the US via NATO and a large and unlimited defence cheque. On the other hand, the EU has also benefited in a big way from the Chinese supply chain as well as the vast Chinese markets for EU products. Now, the EU has to make a choice, and they may opt for a third option. The EU may use the trade war to put its own house in order by giving a boost to capital investments, sinking billions of dollars into defence etc. This could be the narrative to watch out for. 

Finally, there are trade hungry nations like India, Vietnam, Indonesia, Middle East, Philippines, Latin America and, of course, China. Here most of the nations are trying to gain a bigger foothold in the supply chain, that China dominates. For countries like India and others, it is not just about getting a larger trade and export share, but also about being able to set up units to manufacture products on behalf of the large MNCs. But above all, the trade hungry nations will also be keen to understand how the global trade and power equations evolve post the tariff war. That could be the key takeaway from the global tariff war!