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19 Oct 2010

International Economy

China-USA Trade Dispute: Limited Impact on Thailand (Business Brief No. 2962)

The currency value dispute between USA and China is heating up. The US has pressured the Chinese authorities to allow the Yuan to appreciate further, though the Chinese has already decided to increase the flexibility in their CNY/USD forex rate on June 19, 2010, to ease pressure from the US. (During July 2008 – June 19, 2010, the Yuan remained unchanged at CNY6.83 per US Dollar). As a matter of fact, the Yuan has appreciated only 2.7 percent since June 19, 2010. The US Treasury Secretary viewed that the Yuan should appreciate further by 20-40 percent, and added that the currency intervention by Chinese authorities may lead to an unfair trade advantage over the US.
As a result, the US authorities passed the Currency Reform for Fair Trade Act on September 29, 2010, to force Yuan appreciation to reflect its true value. Although that trade act will not become effective immediately, China has launched some tariff measures to rebut the US by setting up barriers against products imported from the USA. Due to some connections between their production networks, US-Chinese trade and investment may show unsatisfactory and unstable growth over the remainder of 2010.
KResearch views that Chinese authorities may let the Yuan appreciate gradually in order to prevent damage to their export sector. Nevertheless, we may see only a slightly stronger Chinese Yuan, which would help reduce some pressure from the US, while also avoiding Chinese displeasure. The tariff barrier measures that the US would use to retaliate against China would not cover a broad range of products, and the extent of the tariff increases would not be severe, because China is deemed important toward the US economic recovery, particularly for employment in US export sector manufacturing products sent to China. In addition, China is an important source of inexpensive raw materials and consumer goods, as well as a low-cost production base for US manufacturers.
In conclusion, the impact of the China-USA trade dispute may be limited because the two economies are somewhat intertwined. As a result, Thailand may be only indirectly and slightly affected by the dispute.
As for Thai-Chinese Trade, Thai trade may be affected moderately by a deceleration in the Chinese business sector, so Thai exports will likely grow further because Thailand is considered a production network for China as well as a key source of high quality raw materials and capital goods for Chinese manufacturers. Also, our consumer goods are accepted quite well by Chinese consumers.

In Thai-US trade, it is expected that Thai products will also be only slightly affected by the dispute. Nevertheless, we should monitor various issues that may affect Thai-US trade, including the US economic recovery and their employment situation, as well as the recovery of the US export sector that may affect the overall US economy.

International Economy