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19 Nov 2018

International Economy

Trade war may trigger more investment outflows from China but its benefits on Thailand will be limited to certain industries (Current Issue No.2939)

           ​Uncertainties associated with the trade war between Washington and Beijing may prompt investors to manage their business risks by diversifying their investments from China to countries not directly affected by the trade battle. Nonetheless, direct benefits for Thailand will be limited because Thailand is not a major recipient of investments in labor intensive industries. And as products require increasingly sophisticated technologies, many Chinese products have still maintained a price competitive edge, dimming possibilities of diversion of investments.

            Thailand may benefit from more inflow of investments in products with sophisticated technologies where Thailand has a strong comparative advantage and a dominant presence in the global stage. They are likely to concentrate in electronic products such as hard disk drives (HDDs), integrated circuits (ICs) and printed circuit boards (PCBs). Moreover, Thailand may receive more investments in industries that investors can optimize local raw materials such as rubber processing as China has been importing raw materials from Thailand for remanufacturing and exporting to the United States.

            KResearch forecasts that, regarding the direct benefits for Thailand, the diversification of production base for downstream and sophisticated intermediate products, together with investments in the areas where Thailand has abundant raw materials, may add the value of foreign direct investment (FDI) inflow in the first three years of the geopolitical conflict  (2019-2021) by at least USD800 million, or only around 1 percent of an average annual net FDI value in the past three years (between 2015-2017). The estimates are based on the announcements made by some multinational companies to relocate their production base to Thailand and the likelihood of others following suit to avoid adverse effects from the trade war.  Nonetheless, when taking into consideration the earlier-estimated impact on trade from the trade war on Thailand, the net impact on Thailand is still negative.

            However, Thailand may receive indirect benefits by being able to export more intermediate goods such as plastic pellets or textiles for downstream production in CLMV countries, which may get a boost from an increase of FDI in labor intensive industries due to the trade spat.


International Economy