Collateral Advantage: Opportunities for Asean nations in the trade war

Quinn Libson looks at how ASEAN countries could prosper despite the trade war between the US and China. Optimism about a potential trade deal between the United States and China faded in late May when President Donald Trump accused Beijing of backtracking on agreements. Trump followed up the accusation with a punitive tariff hike of […]

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A chair is left in the empty Bethlehem Steel warehouse building long ago abandoned in Baltimore, MD, on March 9, 2018. Sparrows Point was the largest steel mill in the world, famous for providing steel used to build the Golden Gate and George Washington bridges, but has been sold to Tradepoint Atlantic for a revitalization project that is bringing new industries to the area including Amazon and FEDEX. / AFP PHOTO / JIM WATSON

June 10, 2019

Quinn Libson looks at how ASEAN countries could prosper despite the trade war between the US and China.

Optimism about a potential trade deal between the United States and China faded in late May when President Donald Trump accused Beijing of backtracking on agreements.

Trump followed up the accusation with a punitive tariff hike of more than double to 25% on Chinese goods worth $200 billion.

He also threatened to increase tariffs on the remaining $300 billion worth of goods China exports to the US annually.

Early in June, China responded by raising tariffs to 25% on many of the $60 billion worth US export products.

When the world’s two largest economies exchange blows on goods worth billions of dollars, it’s impossible for other markets to avoid collateral consequences.

Asean countries have not been spared the shocks of this trade dispute. But many are also hoping to leverage the dispute by replacing Chinese production sources in American supply chains.

Vietnam is one such country looking to cash in on the opportunities provided by the China-US slugfest.

According to Brad W. Setser, Senior Fellow with US-based think tank Council on Foreign Relations, Vietnam has emerged as one of this trade war’s big winners.

In the first five months of 2019, Vietnam clocked 28%  growth in terms of exports to the US. Setser attributes the increase entirely to the ongoing trade dispute.

The Vietnamese currency (dong) has, however, been under US Treasury scrutiny.

If Vietnam is found to be artificially devaluing the dong to heighten its market competitiveness and is labeled a “currency manipulator”, it could lead to tariffs on Vietnamese imports which would hit growth.

Cambodia is another country that appears to see opportunities in the challenges posed by the trade war. As with Vietnam, Cambodian exports to the US have grown exponentially.

According to the Census Bureau of the US Department of Commerce, Cambodia’s exports to the United States for the first three months of this year were up 24% compared to the same period in 2018.

There is some concern, though, that Cambodian exports to the US could take a hit if any preferential trade arrangements come under review.

For, US lawmakers are reportedly closely following the review process for the European Union’s Everything But Arms (EBA) trade deal with Cambodia.

The EU began a formal EBA withdrawal procedure mid-February citing “serious human rights violations and a backsliding of democracy” in the Kingdom.

Thailand is another country which experts have cited as a replacement source for goods the United States would otherwise import from China.

The Council on Foreign Relations highlights the potential for Thailand’s broadcasting equipment and office machine-parts industries to fill the gap if the United States is buying less from China.

While Thailand’s Commerce Ministry has said it is setting its sights on replacing Chinese goods in the US market, at the moment that seems a far cry. The country’s overall exports are, in fact, declining thanks in large part due to a contraction of exports to China.

In the first four months of 2019, Thai exports to China have fallen by 8.1% compared to 2018. The decrease has led to a Thai trade deficit of $1.45 billion.

Many of these goods — automotive parts, computers and electronics — are still wrapped up in the supply chains that have been interrupted by the hike in tariffs by the US and China.

Thailand  knows shifting these supply chains will be a costly and slow process. But once new supply chains are created they won’t be easily upended.

If Thailand, Vietnam and Cambodia can stay ahead of the twists and turns of the trade war and fill the gaps in the US market where Chinese exports have died up, the collateral advantage, as it were, of the trade war would last long after it’s over.

 

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