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16 Jan 2020

International Economy

Eyeing US-China Phase 1 Trade Deal…Terms of Trade Pact Will Likely Be Dictated by US Politics (Current Issue No.3072)

            ​The US-China phase 1 trade pact was officially inked on January 15, 2020, lifting hopes that their 2-year tensions could ease. However, the US and China will continue to experience higher tariffs, in particular China, as some of its exports to US are still subject to additional tariffs at the rate of 7.5 percent despite the US decision to reduce tariffs on Chinese imports worth USD120 billion while other Chinese imports worth USD250 billion are still subject to tariffs at the rate of 25 percent in 2020.

            We at KResearch view that the US-China trade tensions may not ease over the short term as it remains to be seen whether China will be able to comply with the terms of the trade deal or not, in particular the requirement to increase US imports over that reported in 2017 by USD200 billion within two years. Other issues include intellectual property and technology transfer as it remains uncertain about China's plans to handle them.    

            Meanwhile, President Trump may use the issue on China's compliance with the trade deal as a political tool to increase his popularity before the US presidential election scheduled for November 2020. However, if the US economy weakens and President Trump's political supporters do not substantially benefit from the US-China trade deal, it is likely that his popularity will drop. If that is the case, President Trump may resort to increasing pressure on China to comply with the trade pact, thus heightening trade tensions and preventing the two countries to sign the second trade pact.

            Given this, Thai exports may continue to experience uncertainty during 2020. However, the US tariff cuts on Chinese imports may preliminarily ease such an impact on Thai shipments to China. As a result, our exports overall to China may decline only USD600 million in 2020. Nevertheless, as China is required to import more from the US over the next two years, Thai exports, in particular electrical appliances, electronics and chemicals, might lose some market shares in China. Meanwhile, since US soybean prices will likely increase, Thailand may have to seek other import sources.