China’s benchmark Shanghai Composite Index slumped 3.8% Tuesday, the biggest decline in Asia, even though many of its neighbours are more exposed to trade skirmishes, the economists wrote in a June 20 note. The index was down a further 1% Wednesday.

“The pattern of declines did not reflect the distribution of risks,” said Chen and Orlik. “The reality is that even with US tariffs imposed directly on China, the small share of exports in GDP, and the outsize role of imported components in those exports, mean China’s exposure is relatively limited.”

Casualties of War
Taiwan, Malaysia, Hong Kong and South Korea stand out with the largest exposure to a drop in China’s exports to the US, they wrote, based on data from the Organisation for Economic Co-operation and Development . Their shipments of components to China as a share of gross domestic product are larger than China’s own value-added exports as a share of its economy they said.

Benchmark stock gauges in Taiwan and Malaysia declined 1.7% and 1.6% each Tuesday, outperforming their Chinese counterpart. South Korea’s Kospi Index fell 1.5% before rebounding as much as 1.1% Wednesday.