If US President-elect Donald Trump follows through on his promise to impose massive tariffs on China and trigger a new wave of factory relocations to the rest of the region, some Asian countries could benefit.
But the trade war between the world’s largest economies will also destabilize markets everywhere, with Asia – which contributes the largest share of global growth – hit hardest.
Trump, who won a landslide victory in the presidency this week, had vowed during his campaign to impose a 60 percent tariff on all Chinese goods entering the United States in an effort to balance trade between the two countries.
However, analysts question whether the new president will stick to such a high figure, and dispute the impact such tariffs would have on the Chinese economy, estimating GDP could shrink between 0.7 percent and 1.6 percent.
The cooling effect will also ripple across Southeast Asia, where production chains are closely linked to China and enjoy significant investment from Beijing.
Adam Ahmed Samdin of Oxford Economics said, “Lower US demand for Chinese goods due to higher tariffs on China would translate into lower demand for ASEAN exports, even if US tariffs are not imposed directly on those economies.”
Indonesia is particularly exposed due to its strong exports of nickel and minerals, but China is also a top trading partner of Japan, Taiwan and South Korea.
Apart from China, Donald Trump has warned of a 10 to 20 percent increase in tariffs on all imports over its protectionist policies and other countries’ intention to take advantage of the US.
“The extent of these effects depends on each economy’s direct exposure to the US,” Samdin said, noting that the US accounts for 39.1 percent of Cambodian exports, followed by Vietnam at 27.4 percent, Thailand at 17 percent. 15.4 percent from the Philippines.
Will India be targeted?
Trump first imposed heavy tariffs on China in 2018 during his first administration, leading to the rise of “connector countries” through which Chinese companies passed their products to avoid US taxes.
Those countries may now come under fire.
“Vietnam’s electronics exports to the US may also be targeted by Trump to stop the diversion of Chinese electronic products to the US via Vietnam from 2018 onwards,” said Lloyd Chan, a senior analyst at MUFG, Japan’s largest bank.
“This is not unimaginable. Trade rewiring has gained particular popularity across the region’s electronics value chain.”
“India itself could become a target of protectionist measures by the US due to the large share of Chinese components in Indian products,” said Oxford Economics economist Alexandra Harman.
Ajay Srivastava of the New Delhi-based Global Trade Research Initiative said Trump “could impose higher tariffs on Indian goods in sectors such as automobiles, textiles, pharmaceuticals and wine, which could make Indian exports less competitive in the US”.
Ajay Sahay, director of the Federation of Indian Export Organizations, said the trade war would be dangerous for India.
“Trump is a transactional person. He may aim for higher tariffs on some items of Indian exports so that he can negotiate for lower tariffs for US products in India,” he told AFP.
supply chain changes
In the medium term, these negative impacts can be balanced by setting up factories outside China to avoid the consequences.
Production shifted to India, Malaysia, Thailand and Vietnam under the “China+1” strategy launched during Donald Trump’s first term.
Due to its geographical location and cheap skilled labour, Vietnam has already been one of the main beneficiaries.
The country has particularly received investment from Apple subcontractors Foxconn and Pegatron of Taiwan and South Korea’s Samsung, which has become the second-largest exporter of smartphones in the world after China.
“The possibility increases that even more businesses will want to have a second or third production base outside China,” said Bruno Jaspert, president of the European Chamber of Commerce in Vietnam.
Chinese companies themselves are investing extensively in sectors from Vietnam to Indonesia, including solar, batteries, electric vehicles and minerals.
“American companies and investors are very interested in opportunities in Vietnam and that will continue under the incoming Trump administration,” said Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi.
But whether it is low-end or high-tech production, it is difficult to regain China’s competitive advantage in price, scale and quality, Nomura Bank warned.
Thomas Helbling, the IMF’s deputy director for Asia, recently told AFP that restructuring of production chains could lead to a “loss of efficiency” and raise prices, “with a negative impact on global growth”.
Therefore, Asian countries may gain export market share but may ultimately lose their position due to weak global demand.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
