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3 Dec 2018

International Economy

US-China trade truce to suspend imposing tariffs for 90 days eases short-term tension but impact on Thailand lingers (Current Issue No.2943)

          On the sidelines of the G20 meetings in Buenos Aires, Argentina on December 1, 2018, US President Donald Trump and Chinese President Xi Jinping  struck a temporary truce, agreeing not to increase punitive tariffs for 90 days after the G20 meetings to pave the way for negotiations to end the trade war. President Trump agrees to postpone increasing tariffs on USD200 billion of Chinese goods from 10 to 25 percent from the original schedule of January 1, 2019 for another 60 days to March 1, 2019. China, meanwhile, pledges to buy a larger amount of agricultural produce, energy and industrial goods from the US to address trade imbalances between the two countries. Moreover, both leaders agree to begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft.

             ​The trade truce sends a positive signal that Washington and Beijing are likely to meet half way, which may lead to the end of trade spat in the future. It deescalates international geopolitical tensions, at least in the short term, and benefits Thai exports. Nonetheless, KResearch predicts that chances are slim for the negotiations to be wrapped up within 90 days as it is considered too short of a time period for concluding trade talks.  Moreover, changes in the American companies' articles of association regarding technological transfer to Chinese producers and intellectual property protection are complicating issues. Hence, the deals are unlikely to be struck within a short period of time. Therefore, it is more likely that Washington will proceed to increase tariffs from 10 to 25 percent on March 1, 2019. KResearch thus anticipates that the impacts on Thai exports will stay unchanged from our earlier forecast with the range of USD3.1 billion-USD4.5 billion in 2019, or around 0.6-0.9 percent of the Thai GDP. Regardless, the US may not proceed with tariffs on an additional USD267 billion worth of Chinese exports as previously threatened, which cover all key Chinese exports to the US. The additional tariffs would include consumer goods with Thailand being a part of their supply chains. Meanwhile, China is likely to show a more compromising stance and yield to the US demand. These factors will help ease tensions in the international trade scene and may contain the effects on Thai exports in the lower end of our estimates at USD3.1 billion.