Bracing ourselves for a China-US trade war

opinion July 02, 2018 01:00

By Suwatchai Songwanich
Chief executive Officer,
Bangkok Bank (China)

The on and off threat of a trade war between the US and China continues to rock markets as both countries have threatened hefty tariffs on one another, starting this month.



The US is due to impose 25-per-cent tariffs on US$34 billion (Bt1.12 trillion) of Chinese imports from July 6, while China is due to reciprocate at the same level on the same date. And this is just the start – if no agreement is reached more tariffs will come further down the track.

In an attempt to avoid a full-scale trade war, China is trying to enlist the support of leading US companies. On June 21, Chinese Premier Xi Jinping met with the heads of the Global CEO Council in Beijing and urged them to fight against “protectionism, isolationism and populism”.

US attitudes are hardening, however. Last month, the White House Office of Trade and Manufacturing Policy issued a strongly worded paper accusing China of economic aggression that not only threatened the US economy but also the “global innovation system of the world”.

Both China and the US have strong hands to play and perhaps each thinks that the other will back down. China assumes that many US companies depend on the Chinese market for sales and their manufacturing operations in China would suffer from punitive tariffs. However, a research note by Societe Generale indicated that China would be the biggest loser if all threats were implemented. It calculated that Chinese GDP could fall by one per cent whereas the effect on US real GDP would be a “far more modest” 0.1 per cent to 0.2 per cent.

If the trade war does escalate there will be many negative consequences for the global economy, and this has been disturbing global markets. Thailand has additional concerns as China is our biggest export partner and many of the goods we produce are part of China’s supply chain. Thailand’s Commerce Ministry says that Thai shipments of washing machines and solar cells have already fallen due to new US tariffs imposed earlier this year, while aluminium and steel sales will also be hurt. On the other hand, the Thai Development Research Institute says that while Thai exporters may suffer in the short term, the impact will be limited and there will be benefits longer term as investment may relocate to Thailand from China.

China has indicated that it is willing to make some concessions by cutting some tariffs and the People’s Bank of China will boost liquidity by easing capital reserve rules. If a deal can be reached with even bigger tariff cuts that stimulate trade, in the end there could be winners all round.