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How China-U.S. trade spat may impact Thailand

If China and the United States escalate their trade tiff into a full-fledged trade war, economic turbulence could spread in Thailand and other Asean countries

Olivier Languepin

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Although most countries in the region have not yet been hit by U.S. trade curbs, countries such as Thailand and Vietnam, which sell more to the U.S. than they buy, could be impacted in the near future.

As tensions between the U.S. and China grow, ASEAN economies relying heavily on exports (about 60% of Thailand’s GDP is export oriented) may suffer collateral damages in the middle of a reminiscent trade war between two great powers.

ASEAN’s members range from the Indonesia, which is the world’s biggest Muslim-majority country; to mostly Christian Philippines, and Buddhist Myanmar, who sit strategically positioned between India and China.

Much of the region’s economy relies on global production chains with manufacturing in countries such as Vietnam or Thailand shipping parts to China for final assembly before export to the U.S.

Neither government has publicly declared its latest demands but, according to widespread media reports — confirmed by the US-China Business Council as accurately representing the Trump administration’s position — the US requested that China cut its trade surplus with the US by USD200 billion by 2020.

in a recent update, Moody’s Investors Service says that it does not believe that China can satisfy US requests to reduce its trade surplus with the US by $200 billion by 2020 without causing significant disruptions to its economy.

 

US has trade deficits with most Asian trade partners

US has trade deficits with most Asian trade partners

While Trump believes China is the biggest offender, he also has criticized both Japan and South Korea for allegedly “unfair” practices which he claims contribute to trade surpluses with the U.S. and create jobs in East Asia at the expense of American workers.

Thailand could be next on the list as the country also have a significant trade surplus with the US.

How Thailand could be impacted ?

The tariffs against an estimated $50 billion worth of Chinese imports into the U.S. — in the form of a 25% tariff against more than 1,300 products — is targeted against strategic sectors linked to Beijing’s “Made in China 2025” initiative to upgrade Chinese industry.

Thus Washington’s action threatens “Made in China 2025” initiative, which seeks to shift the country away from labour-intensive industries to high-tech industries.

This drew a quick response from Beijing, which threatened tariffs of 15-25% on 128 American products such as fruits and pork, followed by a threat to impose 25% tariffs on 106 additional products including oilseeds and plastics from the US.

A long-standing ally of the US, Thailand has seen its steel industry rattled by a looming trade war as President Donald Trump’s rhetoric on slapping hefty tariffs on steel imports has morphed into reality, wrote the Bangkok Post

The Thai Auto Parts Manufacturers Association (Tapma) is also concerned about a global trade war sparked by tariffs from US President Donald Trump, as the US has imposed tariffs of 25% for steel and 10% for aluminium, and those two products are raw materials for auto parts.

But some commentators in Thailand and other countries are speculating that they may stand to gain from a U.S.-China trade war,  as opportunities arise to grab a share of the trade between the two giants.

In a New York Time article one US business owner says that putting tariffs on Chinese products would simply force her to look for suppliers in other low-cost countries, including Thailand, Malaysia and Vietnam.

the imposition of tariffs between the US and China may lead to an increase in the demand for Thai products that are substitutable in their two markets.

says EIC, a unit of Siam Commercial Bank Public Company in a recent study about potential impacts on Thailand from a US-China trade war

Limited short term impact

But on the other hands EIC analysts also think that US tariffs on Chinese high-tech goods could affect Thailand, although the impact should be limited for now.

This is because the link between Thailand’s supply chain and high-tech Chinese exports is relatively small. Also, Thai exports to China of automobile and electronic products, such as digital cameras, are mainly for final consumption within China.

Still as a developing country that relies on exports, Thailand cannot expect to get out the storm acting as a bystander : as for today there is no signal that President Trump will be halting threats to impose further tariffs.

 

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