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5 Sep 2019

International Economy

Renewed Trade War Forces Companies to Move Production Out of China…Thailand’s Potential to Lure New Investments May Be Limited (Current Issue No.3028)

            The intensifying US-China trade dispute in terms of the value of goods subject to their import tariffs and magnitude of their import tariff hikes may shave Thai exports by approximately USD3 billion in 2019, against the USD2.4 billion projected before. 

                 Downstream businesses in China with production bases abroad have been the first to gradually diversify investments to other countries in order to ease the impact of the protracted US-China trade war. Such countries are largely where there is the availability of outsourced manufacturing service providers or where their parent companies had already diversified investments. According to news reports, over 50 companies in China have already diversified or expressed their interest to diversify some investments to other countries so far in 3Q19.  Based on a preliminary assessment, the amount of such investments may reach at least USD5 billion, with Vietnam being the major beneficiary. Meanwhile, Thailand has benefited from investments diversified by Japanese and Taiwanese companies, which produce the same or similar product categories, into our electronic industry.  

               Looking ahead, the persistent US-China trade dispute may force companies having major production bases in China and no other key production bases in the region to diversify their investments again. The value of such investments may reach USD30-35 billion/year within the next 2-3 years.

                 ​With regard to this impact on Thailand, the amount of investments that such companies may diversify to Thailand may be limited compared to the first round because most of the goods subject to the latest import tariff hike are downstream/labor-intensive consumer products. However, Thailand may benefit from investments diversified by those companies in the production of electrical appliances and toys that have fair shares of the US market.