Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
The pounding of the trade war drums is growing ever more deafening, with the U.S. and China currently engaged in an escalating, tit-for-tat tariff battle. The latest salvo came on 23 August when a fresh raft of tariffs came into force and two days of trade talks in Washington drew a blank. Many are still hopeful that common sense will prevail, but what if negotiations fall through? What would happen if analysts’ worst fears are realized, and we enter a full-blown trade war? What would be the impact on the export-oriented economies of the ASEAN region?
Reciprocal blanket tariffs would almost certainly shave several decimals off growth in both countries and dampen global economic activity. This spells bad news for the more export-dependent ASEAN economies, such as Singapore, Vietnam, Malaysia and Thailand. Of these four economies, Vietnam and Malaysia export the most to the U.S. and China as a percent of total exports, potentially making them more exposed. In addition, Singapore, Malaysia and Thailand have sizeable manufacturing sectors, highly integrated into global value chains which would be severely disrupted by tariffs.
However, this doesn’t tell us the whole story. Although Indonesia and the Philippines—by nature of their huge domestic markets—are less export-oriented, they are more exposed to the likely financial market fallout from a full-fledged trade war. Due to their weak current account positions, both countries could experience capital outflows and sharp currency depreciations. This tendency has already been observed so far in 2018, with the rupiah and the peso losing substantial ground against the dollar on rising economic uncertainty. This could necessitate even higher interest rates in these countries, dampening economic growth.
However, it isn’t all doom and gloom. The impact on ASEAN’s smaller countries should be mild, given that they are less plugged into the global economy. In particular, Brunei—which has extremely low exposure to the U.S. and China and relies heavily on Japan—appears well shielded.
The U.S.-China tariffs could even offer certain upsides to ASEAN. In particular, some companies based in China could move more manufacturing operations to ASEAN countries to circumvent tariffs. Possible beneficiaries include Malaysia’s chemical industry and Vietnam’s consumer goods sector. Plus, Chinese tariffs on U.S. primary products could help Thai fruit exporters and Myanmar cattle owners grab a larger slice of the Asian giant’s market.
But despite these silver linings, the impact of a trade war on ASEAN will still be resoundingly negative. In a now-infamous tweet, President Donald Trump once remarked that “trade wars are good, and easy to win”. Few ASEAN countries are likely to share his enthusiasm.
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Author: Oliver Reynolds, Economist
Date: August 29, 2018
TagsIsrael digitalcurrencies Brazil Tunisia interview Trade Euro Area Iran Draghi Africa Canadian Economy Vietnam Canada Russia European Union election Exports Banking Sector Asian Financial Crisis TPI Brexit Budget deficit Economists Resource Curse Argentina Cannabis Major Economies Italy Investment public debt Spain Precious Metals Commodities Lagarde Gold economic growth MENA Energy Commodities Cryptocurrency Costa Rica; GDP; Budget Asean Company News Agricultural Commodities Economic Growth (GDP) Venezuela Nigeria Eastern Europe centralbanks Mexico GDP Interest rate Emerging Markets Government Bond Ukraine United Kingdom ECB Germany Portugal Palladium Copper Economic Crisis Healthcare Political Risk G7 Greece scotiabank chile UK Inflation Commodities Housing Market China Sub-Saharan Africa Colombia South Africa Fed Base Metals Bitcoin Economic Outlook Forex Eurozone Nordic Economies IMF Exchange Rate Australia India Consensus Forecast Economic Debt CIS Countries TPP United States Oil Asia Infographic oil prices Japan Latin America precious metals USA Base Metals Commodities TPS Unemployment rate Turkey France Central America OPEC
6 hours ago
Elevated prices for fuel will continue to drive inflation in Sub-Saharan Africa, as transport accounts for a large… https://t.co/W2PGPPQgbg
5 days ago
Most large Asian economies will lose steam in 2023, as pent-up demand eases following the lifting of Covid-19 restr… https://t.co/YyvSOSqBI4
6 days ago
6 days ago
In this special survey of 120 analysts from leading institutions, we examine the inflation outlook for this year an… https://t.co/28LA6wzqYR
1 week ago