What are US-China Trade War Implications for Thailand ?

Thailand is a success story of globalisation, and has benefited enormously from an open global economic order. The country’s rise to upper-middle income status has been fueled by inward investment and export industries. 

In April, the United States began to impose severe tariffs on a wide range of Chinese goods. China has responded in kind. Both sides are escalating the confrontation.

What are the implications for Thailand? Will the economy be hit by global market disruption? Or could it gain from diversion of trade and supply chains? Will there be other fallout? How might the Thai government manage these challenges?

This subject has far-reaching consequences for local and international businesses and it has been debated recently by four panelists chosen by the FCCT.

Where is this coming from ?

The main reason behind the US-China trade war is that the United States wants to reduce its trade deficits.

US President Donald Trump tweeted on 4 April 2018 that ‘[the United States has] a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!’.

We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!

— Donald J. Trump (@realDonaldTrump) April 4, 2018

Since then Donald Trump has also tweeted more explicit reasons to consider that the trade with China is unfair and thus damaging US commercial interests. Like in a more recent tweet of September 9 :

If the U.S. sells a car into China, there is a tax of 25%. If China sells a car into the U.S., there is a tax of 2%. Does anybody think that is FAIR? The days of the U.S. being ripped-off by other nations is OVER!

— Donald J. Trump (@realDonaldTrump) September 9, 2018

Many US commentators think that the enormous imbalance of trade with China is tantamount to fueling US indebtedness to China, which they consider to be a huge vulnerability for the United States.

China also owns about a third of the US treasury bonds and could use this as a leverage if things goes wrong.

commented Kirida Bhaopichitr, Director of the Economic Intelligence Service (EIS) at the Thailand Development Research Institute (TDRI).

But the US trade deficit is not only the only concern of Donald Trump with China.

China ‘s raising influence and plan to become a tech power by 2025 is a direct threat to the United State leadership

says Kirida Bhaopichitr

By staging a trade war with China the United States also wants to hamper China’s progress toward being a high-tech superpower. The tariffs hikes targeting electronics and IT technology are also directly targeting the “Made in China 2025” initiative.

What are the consequences for Thailand

 

Perhaps the most apt saying to apply to the so-called “trade war” between the United States and China is “when elephants fight, it is the grass that suffers”. Those who will likely suffer the most from further escalation between the two giants will be the smaller export-dependent countries.

said Pavinda Pananond introducing her speech at the FCCT.

But on the other hands she also acknowledged  that Thailand could be an interesting location for businesses willing  to relocate from China, noting however that for labor intensive activities Vietnam would probably be more attractive.

Is Thailand a viable alternative to replace China in the supply chain ?

There is also a strong challenge from Taiwan with a strong background in electronics, but in the long run Thailand can be considered as a viable alternative in South East Asia to replace China in the supply chain and to avoid been hit by an escalating trade war between the two giants.

The hope in many circles around here is that Thailand could reap the windfall from the relocation of China-based multinationals firms that are facing tariff hikes, in sectors like robotics, aviation parts, automotive, computer parts and electronics.

adds Pavina Pananond.

Kirida Bhaopichitr, Director of the Economic Intelligence Service (EIS) at the Thailand Development Research Institute (TDRI) also stated that the positive outcomes of a full-blown US-China trade war could be more significant than the negative consequences.

Supply chain disruption among the negative factors that could impact Thailand, but only on a small-scale. In the long run trade diversion generated by the US-China spat would have a more positive impact than negative.

The implementation of tariffs hikes is also much slower  than announced by president Trump on its Twitter account. But experts agreed that the next round of $200 billion tariffs is likely to affect a much broader range of products, some of them affecting the American household consumption budget.

Nevertheless, every time Trump announces a news string of trade war measures against China, his popularity rises among American constituents.

After the midterm election, the trade war might slow down, and US begin negotiations with China

also stated Kirida Bhaopichitr.

Confirmed panelist of the FCCT event

Pavida Pananond is associate professor of international business at Thammasat Business School, Thammasat University. She holds a PhD in economics (international business) from the University of Reading, and an MBA from McGill University. Pavida is an expert on the internationalisation of companies, global value chains, and economic upgrading, and is widely published in leading international journals. She is honorary adviser to the Asia New Zealand Foundation.

Kirida Bhaopichitr is Director of the Economic Intelligence Service (EIS) at the Thailand Development Research Institute (TDRI) the most well-established independent think-tank in Thailand. Prior to joining TDRI in 2015, Dr. Kirida worked with the World Bank for 16 years as the Country Economist for Thailand. Currently her work focuses on the macroeconomic development, business climate, and technology issues of Thailand and the rest of the globe. Dr. Kirida received her Ph.D. in Economics from Cornell University.

Paul Gambles is Managing Partner of MBMG Group, a diversified financial services group that forms part of a global business with over 25,000 employees across over 100 countries. He is licensed as a securities fundamental investment analyst and investment planner, and previously worked for the Bank of Scotland and UK Inland Revenue. Paul is a frequent commentator in the international media.

Paul Sumner has lived in Thailand since 1997. He is a partner at PricewaterhouseCoopers that leads the Customs and International Trade practice for Mekong (Thailand, Vietnam, Cambodia and Laos) and the Philippines. Paul is experienced in advising clients on various aspects of customs and international trade, with a particular focus on the valuation of goods for customs purposes and audit/investigation defence. He is actively involved with customs compliance issues, including, internal compliance reviews, dispute resolution, optimising preferential trading arrangements, and implementing customs valuation and tariff classification solutions.