2018 was filled with aggressive posturing regarding trade protection by the U.S. and China. Recently, this was escalated further. Discussions have apparently not taken place since the Trump administration ratcheted up its scrutiny of Chinese telecom companies.

An agreement on trade is at risk since the negotiations between the U.S. and China appear to have stalled as both sides dig in after disagreements earlier this May. Undoubtedly for investors, a protracted dispute between the world's two largest economic superpowers will surely affect Asian markets. But in what way?

Asia's open economies

Asia has some of the most open economies in the world, and a trade war between the U.S. and China will certainly jolt financial markets in the region. Though the situation appears grim, most multinational companies are fleet-footed, and there are companies, industries, and economies that stand to benefit from the ongoing trade war.

Laymen observers might suggest the U.S. is winning the trade war since its stock market continues to make gains. Meanwhile, the Chinese stock market has felt the heat, and companies operating out of China are being forced to redraw their supply chain maps. Simply put, if companies are unable to manufacture goods in China, they will likely move operations to Thailand, Vietnam, or Indonesia.

Winners and losers

As reported by the Economist Intelligence Unit (EIU), Asia stands to be the biggest beneficiary when manufacturers move out of China:

We expect the trade war to escalate further in the coming months, ultimately covering finished consumer products including mobile phones, laptops and other electronic goods, as well as apparel.

Additionally, a strong network of free trade agreements in many Southeast Asian nations exists, which makes it easy for them to jump on the bandwagon. The recent Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade pact, which includes countries such as Malaysia, Singapore, and Vietnam, is a prime example of this trend.

Who stands to gain?

President Donald Trump announced tariffs on $200 billion worth of Chinese goods last week, escalating the U.S.-China trade war. The U.S. Trade Representative removed almost 300 products from an initial list released in July, but 5,745 Chinese goods will still get hit.

Keeping this in mind, there are two channels of potential benefit from the fallout of this trade war: import substitution in the short term and production relocation in the middle term.

These two channels are conduits of gain for different Asian countries. It is highly likely that Malaysia will be the largest beneficiary of import substitution by companies in the U.S. and China. It is followed by Japan, Pakistan, Thailand, and the Philippines, respectively.

Import and manufacturing beneficiaries

Of all the Asian countries, India, Bangladesh, and South Korea seem to be the least likely to gain from import substitution. Malaysia can benefit from electronic integrated circuits, communication apparatus, and liquefied natural gas; Japan from automobiles; Pakistan from cotton yarn; and Thailand from units of automatic data processing, while the Philippines could stand to gain from electronic integrated circuits.

If there is a prolonged U.S.-China trade standoff, it would, over time, encourage multinationals to divert production to factories situated in other countries, or even relocate whole manufacturing processes in a bid to escape tariffs. In the middle term, Vietnam benefits the most, followed by Malaysia, Singapore, India, and Thailand.

Despite any positive substitution effects, most Asian countries happen to be suppliers of parts and components to China, where they are in turn assembled into exports destined largely for the U.S. and Europe. All Asian economies may be indirectly negatively impacted by higher U.S. import tariffs on Chinese goods. As a region, Asia stands to lose if a full-blown U.S.-China trade war comes about.

Where do we go from here?

It is probably going to take at least a few years for the drama (and repercussions) of the trade war to completely play out.

Worldwide organizations will require time to draft new global and territorial procedures, find new accomplices, explore diverse lawful frameworks, and secure the required licenses. And according to the EIU, even under the most hopeful situation, the advantages for Asia's champs in the trade war are probably not going to be seen before 2020.

A version of this article was written by Ved Prakash and originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en.