Connect with us
CGIF-10th-Year-Anniversary

China

US-China Trade war escalates risking further slowdown in Thai exports

The US government raised import tariffs on Chinese goods worth USD 200 billion from the previous rate of 10% since September 20181 to 25% starting 10 May 2019.

Avatar

Published

on

The trade war that heats up once again is likely to weigh on Thai exports through 2 channels, directly through supply chain between Thailand and China and indirectly through slowing global trade in line with Chinese and trading partner economies.

If the US and China are unable to reach a trade agreement in the short run, it is then highly likely for Thai export value in USD term in 2019 to grow at a lower rate than 2.7%.

Amid the heat up of the US-China trade war, Thai exports could face both direct and indirect impacts through China’s supply chain and reducing global trade, should China and global economies worsen.

Highlights

  • On May 10, 2019, the US government announced to raise import tariffs on Chinese goods worth USD 200 billion from 10% to 25%. This was following the trade negotiations between the US and China that did not sufficiently progress. On May 13, China retaliated by also announcing to increase import tariffs on US goods worth approximately USD 60 billion at a rate of 5-25%. 
  • The trade war that heats up once again is likely to weigh on Thai exports through 2 channels, directly through supply chain between Thailand and China and indirectly through slowing global trade in line with Chinese and trading partner economies. If the US and China are unable to reach a trade agreement in the short run, it is then highly likely for Thai export value in USD term in 2019 to grow at a lower rate than 2.7%.
  • Meanwhile, Thai exporters should readily diversify export destinations and consider reaping benefits from Thailand’s current free trade agreement to increase opportunity and expand market, and hedge against foreign exchange volatilities in the period ahead. 

The 5 key issues, that are to the heart of the negotiation, include violations of intellectual property, forced technology transfers, government supports for firms and state-owned enterprises (SOEs), opening-up of services market, and currency manipulation.

On this, China claimed that it was owing to difficulties in amending domestic laws in China.

The trade negotiations between China and the US at present has no clear deadline for the reform, while amendments to the Chinese law to comply with the US requests progressed very slowly and were full of restrictions from the Chinese side in the view of the US, which was not acceptable for President Trump.

Import tariffs worth USD 200 billion at the original rate of 10% was on conditions that China has to strictly comply with US requests. If the US sees that China is unable to comply with the requests, the US has the right to further increase tariffs to 25% in accordance with Section 301 of the US Trade Act as originally planned.

From the above mentioned reasons, President Trump thus decided to raise import tariffs on Chinese goods instantly and saw this round of new tariffs as a strategy to force China to comply with US requests in a more effective manner. 

Impacts on the Thai economy

Amid the heat up of the US-China trade war, Thai exports could face both direct and indirect impacts through China’s supply chain and reducing global trade, should China and global economies worsen. 

The impacts from ongoing trade war on Thai export sector can be categorized into 2 channels. 1) Direct impact on Thailand’s role in China’s supply chain of exports to the US. The majority of Thai goods linked to China’s supply chain are computers and parts, electrical circuits, wood and wooden products and chemical products.

Exports of these products, since the first trade restriction imposed in August 2018 up until March 2019, have fell by 23.6%, 30.6%, 36.1% and 75.9%, respectively, and as the trade war prolongs, growth of these exports are unlikely to recover. From the list of Chinese goods worth USD 250 billion facing new 25% tariff rate, Thai exports that are most likely to be affected are primary and intermediate goods such as electrical parts, plastics, rubber and wood (Figure 5).

Based on the value of Thai exports in 2018, the estimated impact from the trade war on above 4 categories of exports is at 2.1% of total exports or USD 633.7 million. 2) Indirect effect from slowdown of China and trade partner economies as domestic consumption of partner countries falls. As a result, Thai exports are likely to be affected with respect to both product type and export markets like in Japan, Australia, and EU15 and ASEAN5 (Figure 6). Given that trade war persists and pace of global recovery slows in the latter half of this year, EIC believes growth of Thai exports may miss EIC’s 2019 projection of 2.7%. Thus, Thai businesses and exporters that are reliant on the Chinese market will need to keep close watch on the US-China trade war, in particular, downside risks caused by prolonged US-China trade negotiations and expansion of US tariff imposition on all Chinese goods. 

Dumping of cheap Chinese goods should be closely watched to protect domestic industries, especially steel, from the impact of US-China trade war. 

Since March 2018, the US has imposed a 25% tariff on steel imports from almost all countries in order to protect and promote its steel industry in accordance with section 232 of the Trade expansion act of 1962.

Later, the US imposed additional tariff on Chinese steel at a rate of 10% in September 2018 and raised it to 25% on May 10, 2019 as steel imports are among goods targeted under the USD 200 billion list. As a result, Chinese steel exports lost their price advantage in the US market, and fewer steel will be exported to the market going forward. Although, the Chinese government plans to increase domestic use of steel via infrastructure investments as well as cut steel capacity as part of its plan to curb excess output in heavy industries like steel and coal, some of the excess output may still be dumped into markets in the short-run, where protectionist measures are not yet imposed.

Thailand may be among targeted countries, whereby the specific types of iron and steel products exposed to dumping are bars and rods (HS7215), wire (HS7217), sheet piling (HS7301), seamless tubes and pipes (HS7304), springs (HS7320). As inflows of cheap Chinese steel will put pressure on domestic prices and hurt domestic exporters and producers who cannot adequately adjust costs of production, these should be closely watched. Nevertheless, existing anti-dumping tariffs on some steel products such as open seam tubes and pipes (HS7306) should lower risk of dumping in those product categories.

  

Author: Thanapol Srithanpong, PH.D. and Chinnachod Thaerapanyaporn

Source link

Comments

China

Thailand ready to ink big Chinese-backed trade deal

The RCEP will cover all 10 Asean member states plus five partners: China, Australia, Japan, New Zealand, and South Korea and will take effect from the middle of 2021 if at least six Asean members and three partners agree to its terms.

Olivier Languepin

Published

on

Thailand is set to sign the world’s biggest free trade agreement with Japan, China, South Korea and 12 other Asia-Pacific countries at the 37th Asean Summit this week.

(more…)

Continue Reading

Business

Great Wall Motor (China) takes over GM factory in Thailand

The Thai production hub will become operational in the first quarter of 2021 with automobile production capacity of 80,000 units per annum.

Avatar

Published

on

Chinese carmaker Great Wall Motor (GWM) hosted a ceremony on November 2nd to celebrate the latest milestone in taking full ownership of Rayong Manufacturing Facility in Thailand.

(more…)

Continue Reading

China

Thailand inks 50.6 Bn baht High Speed Rail deal with China

Thai Prime Minster said the project will help strengthen ties between Thailand and China, reflecting a mutual commitment to infrastructure development to help promote economic prosperity, connectivity, and relations between the people of Thailand and China.

National News Bureau of Thailand

Published

on

white electric train
Photo by David Dibert on Pexels.com

BANGKOK (NNT) – Thailand and China signed a rail construction, train procurement, and personnel training contract for a Bangkok – Nakhon Ratchasima High Speed Rail service on the northeastern line.

(more…)

Continue Reading

Cart

Latest

Most Viewed

Subscribe via Email

Enter your email address to subscribe and receive notifications of new posts by email.

Join 13,191 other subscribers

Trending