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2 Aug 2019

International Economy

US decision to impose tariff on additional Chinese goods…Damage to Thailand increases to USD2.4 billion (Current Issue No.3013)

              US President Donald Trump eventually announced an additional 10 percent tariff on the remaining USD300 billion of Chinese imports, effective September 1, 2019, due mainly to the slow progress in the trade talks. In particular, Beijing is bargaining for conditions which are difficult to be achievable.  KResearch views that this round of punitive tariffs will add pressure on Thai exports that are linked to China's manufacturing supply chains, especially electronic parts which are used in  household appliance production. Hence, the damage to Thailand's exports is expected to increase to USD2.4 billion this year due to the escalating trade war (up from our initial projection of USD2.1 billion, which was calculated on the US punitive tariff of 25 percent on USD250 billion of Chinese imports only). The impact will become more evident in 2020 when the indirect effect from the slowing global economy will further drag overall outbound shipments from Thailand next year.

              The next phase of US trade talks with China remains uncertain with trade retaliatory measures going on for over one year.  Apparently, this round of tariff collection should mark the beginning of the end of the trade war because it would make US punitive tariffs cover virtually every category of Chinese imports. Nonetheless, KResearch believes that Washington will go ahead with psychological warfare to pressure Beijing both directly and indirectly: 1) Directly: The Trump administration may further press China by using non-tariff measures and other policies including a US block against the Chinese effort to absorb  US technology and the  prohibition against American high tech companies from doing business with Chinese firms.  2) Indirectly: The US may use existing trade measures to target Chinese businesses and trade activities such as suspension of the Generalized System of Preferences (GSP) and imposition of anti-dumping and countervailing duties (AD/CVD) on other countries which act as conduits of Chinese goods or intermediary countries that China is using to expand its production base or to circumvent imports by rerouting shipments to the US market.  Meanwhile, countries, which receive new overseas Chinese investments, aimed to diversify risks from the US threats, may register a higher trade surplus with the US, making these countries subject to the US currency manipulator watch list. These are risk factors that Thailand must closely monitor.   

               Moreover, it is clear from the previous rounds of trade talks that the US has stood firm on its demands while China is unlikely to cave in to the US pressure. Therefore, Washington is unlikely to end this trade war anytime soon, and it may further impose tariffs in 2020.   Close attention must be paid to the trade war, which has now involved political issues which are complicated and risky to the economies of both countries, and both nations have to weigh any impact carefully before deciding their next moves.

                  ​Looking ahead, the global economy and trade in 2020 are filled with uncertainties and unexpected events that can erupt anytime under the leadership of President Trump. The outlook is not quite promising.  Moreover, the race between the US and China for technological supremacy has spilled over to cause tensions in the diplomatic relationship between South Korea versus Japan and Germany versus China. Additionally, geopolitical consequences from Britain's exit from the European Union will have a far-reaching impact for the entire European region. These factors will create a strong downward pressure on business sentiment in 2020; sentiment may pick up in 2021 if there is a change in the US administration.

International Economy