By Jason Douglas 

In a global trade conflict, the big players might not be the biggest losers. Instead it might be smaller, open countries caught in the middle, such as Hungary, the Czech Republic, Taiwan, Singapore and South Korea.

What these places have in common is they are heavily integrated into global supply chains -- importing raw materials and components from other parts of the world before combining them in their own factories into new products they then sell abroad.

Nestled within the web of economic links joining country to country, such economies face an outsize hit from the higher import costs and weaker demand for exports that would likely flow from an escalation in protectionism.

Though big economies such as the U.S. would also face turbulence, they produce a lot of parts and raw materials at home and are fueled by domestic consumption, offering a partial shield to a downturn in global trade.

"If you are a small, open economy that depends on trade, you are more vulnerable," said Amit Kara, head of macroeconomic forecasting at the National Institute for Economic and Social Research, a nonpartisan London think tank.

The U.S. has imposed tariffs on imported steel, aluminum, solar panels and washing machines, in addition to $34 billion in Chinese imports and has said it could widen China tariffs to hit $500 billion in imports while also slapping new charges on imported cars.

In all threatened tariffs reach nearly $900 billion worth of goods imported into the U.S. China and others have retaliated and say they will respond in kind to any U.S. escalation.

An analysis by Pictet Asset Management of World Trade Organization data estimated small countries' vulnerability to trade conflicts based on their participation in globe-spanning industrial supply chains.

Among those least vulnerable are economies focused less on adding value to exports through manufacturing or services and more on producing raw materials, such as Saudi Arabia, Argentina and New Zealand.

Taiwan, Hungary and the Czech Republic topped the list of vulnerable countries, followed by Singapore and Korea. WTO data shows that between 60% and 70% of these countries' exports are used in global supply chains, where different stages of production are located in different parts of the world, exposing them to disruptions in global trade.

Their economies were hit hard after the financial crisis in 2007 and 2008, which sank global trade. Hungary's economic output contracted 6.6% in 2009, while the Czech Republic's output contracted 4.8%, according to the International Monetary Fund. Taiwan suffered its worst recession in decades.

In Ireland, another small economy that's high on the list, Eoin Gavin, managing director of logistics firm Eoin Gavin Transport Ltd., handles imports and exports between Ireland, other parts of Europe and the U.S.

Mr. Gavin said his business and the wider Irish economy is heavily reliant on foreign investment and trade, especially with the U.S. He said he has five shipping containers of aluminum and steel parts languishing in warehouses after Mr. Trump imposed tariffs on the metals in May.

"If there's going to be tariffs on goods, it's going to have a massive impact on our business," he said.

Some of these countries are already big losers in the eyes of investors. South Korea's Kospi stock index is down 7.5% so far this year, while Singapore's Straits Times index is down 3.7% and Hungary's BUX index is down 10.8%. Malaysia, also on the list, is down 2.1%.

"Nobody wins in a trade war," Pictet said in a recent report.

Hungarian Prime Minister Viktor Orban was Europe's first head of government to endorse Mr. Trump and his America-first foreign policy. His country could be among the biggest casualties if trade tensions escalate.

Hungary draws in components from Germany, Russia and the U.S. to make computer equipment and automobiles that it sells back to Germany as well as Italy and the U.K.

The auto industry accounts for 29% of Hungary's annual manufacturing output, according to the Hungarian Investment Promotion Agency, making it especially vulnerable to Mr. Trump's proposed tariffs on EU auto imports. Firms including BMW AG and Daimler AG have production facilities in the country, fed by more than 700 domestic suppliers.

The International Monetary Fund estimates growth in developing European economies will slow to 3.6% in 2019, from 4.3% in 2018 and 5.9% in 2017.

Some small integrated open economies are better placed to weather a trade war than others.

Luca Paolini, chief strategist at Pictet, which manages $193 billion of assets, said investors seeking shelter should consider not just the level of a country's exposure but also its political and financial stability, its debt rating and its level of foreign reserves.

Though Argentina scores lower than Germany on integration, for example, "it everything goes terribly wrong, you would probably still prefer to be invested in Germany than Argentina," he said. Other, more insulated markets include Israel, India and Indonesia, Mr. Paolini said.

--Drew Hinshaw contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

July 22, 2018 08:14 ET (12:14 GMT)