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7 May 2019

International Economy

US-China trade war escalates…the US threat to hike tariffs on Chinese goods to 25 percent disrupts Thai trade outlook again (Current Issue No.2988)

              The trade talks between the US and China last week did not produce a satisfactory outcome either side. Moreover, the US President Donald Trump announced plans to further raise tariffs on USD200 billion of Chinese goods from 10 to 25 percent starting Friday, May 10. The latest move puts greater pressure on world trade and reflects Washington's effort to force Beijing to pursue negotiation guidelines in order for both sides to reach a mutually-satisfying agreement and stop the trade war by the end of 2019.

              The situation puts China under pressure and further destabilizes the global and Thai trade scene. KResearch views that it is most likely that the US will increase the tariff rate to 25 percent on USD200 million worth of the Chinese goods to pressure Beijing to give in to Washington's demands. With the impacts from the previous rounds of tariff collection since 2018 incorporated in the calculation, Thai exports will suffer to the tune of USD2.1 billion. In the worse-case scenario, if the US raises tariffs on the remaining export list worth USD325 billion to press China to restructure its domestic economic model, to which China is unlikely to yield, Thai outbound shipments may suffer to the tune of USD3.1 billion. The consequences from the two scenarios may further dent Thai exports by 0.2-0.6 percent of the total export value during the remainder of this year. KResearch estimates that the Thai export value in 2019 will increase 3.2 percent (as of April) based on an assumption that Washington maintains a 10 percent tariff rate on USD200 billion of Chinese goods, which will hurt USD1.6 billion of Thai exports.

            In summary, KResearch estimates that the US decision to raise the punitive tariff rate to 25 percent on USD200 billion of Chinese goods will impact approximately USD2.1 billion of Thai exports and may lower the growth of Thai outbound shipments from the original growth forecast of 3.2 percent (the impact from the trade war is estimated to be around USD1.6 billion-3.1 billion).