An investor looks at his mobile showing stock market movements at a securities company in Beijing on May 14. Asian markets extended a global selloff ON Tuesday following hefty losses on Wall Street. Shanghai shed 0.7 per cent.Photo by WANG ZHAO / AFP
An investor looks at his mobile showing stock market movements at a securities company in Beijing on May 14. Asian markets extended a global selloff ON Tuesday following hefty losses on Wall Street. Shanghai shed 0.7 per cent.Photo by WANG ZHAO / AFP

New approach needed as trade war wallops Thai exports

Economy May 15, 2019 01:00

By   PHUWIT LIMVIPHUWAT
THE NATION

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THE RECENT escalation of the US-China trade war may lead Thai exports to grow by only 0.5 per cent in 2019, warned Aat Pisanwanich, director of the University of the Thai Chamber of Commerce’s Centre for International Trade Studies (CITS).



Meanwhile, Bank of Thailand’s assistant governor for corporate strategy and group relations, Chantavarn Sucharitakul said that overall, the trade war is having a net negative impact on the global economy and financial markets. This is because it will affect economic activities in three areas.

 First, the slowdown of world trade will affect local economies that depend on external economies for growth such as that of Thailand, which depends on a combination of trade, foreign investment and tourism for growth. 

 Second, Thai products will be negatively affected by trade diversion as various Thai goods are in the supply chain that is being affected by the US tariffs on China. However, Thailand may stand to benefit from replacing some Chinese goods in the US market. 

 Third, as a result of investment diversion there may be a relocation of production bases from China to Thailand and the Asean region as manufacturers in China aim to avoid the new rounds of US tariffs. 

 Overall, the trade war has made the global trade and investment environment uncertain. Therefore, the BOT will continue to evaluate the impact of the trade war on the Thai economy, Chantavarn said.

In just days, the US-China trade war has escalated after seemingly little progress was made on the trade negotiations between the two countries. 

 Last Friday, the US launched a new round of tariffs on Chinese imports, raising them from the previous 0-10 per cent to 25 per cent on US$250 billion worth of goods and products. These massive payments go directly to the Treasury of the US.

 Meanwhile, on Monday, China retaliated by announcing its plan to increase duties on US imports valued at a total of some US$60 billion (Bt1.89 trillion), to begin in June.

To cap it off, the US administration yesterday morning released its plans to further increase tariffs on up to $300 billion worth of Chinese goods.

“The escalation of the trade war will have a significant impact on the Thai economy,” Aat told a press conference yesterday. “If China follows through and hikes their tariff on US goods in June, Thai exports may only grow by 0.5 per cent in 2019, down from our original forecast of 3.2 to 4.6 per cent growth.”

 This marks a massive deceleration of exports growth compared to last year’s 6.7 per cent, which was already considered low compared to the Commerce Ministry’s year-on-year target of 8 per cent growth. Growth of 0.5 per cent would be the lowest level of export growth the Kingdom has seen since 2016, according to the director.

 Thailand is negatively impacted by the superpower trade tensions because it is part of the supply chain affected by the US tariffs on China. The US tariffs target technological goods such as machinery parts, electrical circuits and auto parts that are manufactured in Thailand. These goods are then shipped to China, from where they are exported to the US after value addition.

 Key exports to China which will face negative impacts from the trade tensions include rubber, chemicals, and automotive and parts. Meanwhile, exports to the US which are expected to reduce include fabric, and machinery and parts. 

 Furthermore, Aat predicted the Chinese Yuan would depreciate by up to 20 to 25 per cent to absorb the negative impacts of the US tariffs. “This will mean that Chinese goods will flood the global market, especially the Asean market, due to their cheaper price,” he explained.

 “To cope with these negative impacts, Thailand must gear up its efforts to negotiate more free trade agreements (FTAs) with other countries. One such agreement is the Regional Comprehensive Economic Partnership (RCEP), which may help absorb these negative impacts to some extent,” Aat suggested. 

 Furthermore, Thailand should start targeting newer markets to diversify its export destinations. Aat pointed specifically to the export potential of the BRICS nations – Brazil, Russia, India and South Africa.

 In the year’s first quarter, Thai exports were valued at US$61 billion, a 1.64-per-cent contraction compared to the same period last year.