FIRST SHOT of a trade war was fired as the US announced tariffs on US$50 billion worth of Chinese imports which partly took effect on July 6. Shortly after, the US government released a list of additional imports worth $200 billion from China on which it proposes a 10 per cent tariff.
The tariff, though would not take effect until September at the earliest, marks a dreadful escalation in international trade conflict.
With the details of the affected products being released, Tisco Economic Strategy Unit (ESU) assesses the potential impact of the trade war on the Thai economy.
First, we analyse the direct impact from the tariff on washing machines, solar cells, steel, and aluminum products on which tariffs are being imposed directly on the Thai exports into the US.
Then, we estimate the knock-on effects from the US-China trade war, in which Thailand could be caught in the crossfire as the country is deeply integrated into the Chinese supply |chain.
The direct impact is quite limited, in our view. The four products subject to US import tariffs added up to only $885 million or 0.37 per cent of Thailand’s exports in 2017. Factoring in the value-added to Thai GDP in the production of these products, the potential impact on GDP will be at the most 0.10%.
For the indirect impact, we assess the impact of US-China trade spat on Thailand’s economy by analysing the list of Chinese export products that would be subject to US import tariff.
The first $50 billion list will mainly affect Thailand’s exports of machinery, plastics and vehicles and parts. In 2017, Thailand exported around $8.8 billion worth of these products to China.
We use OCED data to estimate the extent to which China re-exports these products to US, and found that the amount of Thai exports which could be affected from the first round of US tariffs on Chinese imports would be about $590 million or 0.25 per cent of Thailand’s total exports. Factoring in the value-added portion of these products, the potential impact will be at most 0.06 per cent of GDP.
Lastly, we employ the same technique to estimate the impact of the newly proposed $200 billion list. The potential impact would be 0.6 per cent on exports, and 0.16 per cent on GDP.
All in all, we expect the impact of the trade war, both direct and indirect, to Thai economy will be quite manageable (1.2 per cent of exports and 0.3 per cent of GDP in total).
GDP growth is expected to remain strong in the rest of the year as the recovery in domestic consumption and the investment in infrastructure projects will more than offset the adverse impact from the global trade spat.
KOMSORN PRAKOBPHOL is Head of Strategy at Tisco Economic Strategy Unit. He can be reached via www.tiscowealth.com or firstname.lastname@example.org.