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Grim outlook for exports as trade war escalates

Grim outlook for exports as trade war escalates

SUNDAY, May 12, 2019

Trump frazzles nerves with gamesmanship as tough negotiations with Beijing continue.

EXPORTERS WILL pay a heavy price due to the escalation of the US-China trade war, which will also have a negative impact on Thailand’s economy, according to experts.
On Friday, the US launched a new round of tariffs on Chinese imports. That morning, President Donald Trump tweeted: “Talks with China continue in a very congenial manner – there is absolutely no need to rush – as Tariffs are NOW being paid to the United States by China of 25 per cent on US$250 billion worth of goods and products. These massive payments go directly to the Treasury of the US.”

Grim outlook for exports as trade war escalates

(FILES) In this file photo taken on May 9, 2019 A photo illustration shows a label inside an item of clothing reading "Made in China," in New York.// AFP PHOTO
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, according to the National Economic and Social Development Council. 
The implementation of more tariffs could be a part of the US strategy to gain leverage in negotiations with China, Thai acting Commerce Minister Chutima Bunyapraphasara said.
“The increase in tariffs is a demonstration by the US that President Trump is willing to act on his threats,” said Chatree Rojana-Arpa, executive vice president for strategy and product development at KTB Securities (Thailand).
“President Trump wants to use this move to negotiate with China from a favourable position,” he continued. “If there is progress in the negotiations, the tariff rates will likely be brought down.”
This sentiment is reflected in Thailand’s capital market, which has not taken a significant hit from the trade war escalation. This is because investors are still expecting the tariffs to come down in the near future as US-China trade negotiations make progress, Chatree said. 
On the other hand, a drawn-out escalation of the trade war would further hamper Thailand’s exports, which have been performing poorly in 2019. 
In the first quarter of this year, Thai exports were valued at US$61 billion, a 1.64-per-cent contraction compared to the same period last year. 
In 2018, Thai exports grew by 6.7 per cent year on year. As a result of the trade war escalation, various financial institutions have cut their export forecasts for 2019 to less than half of last year’s growth. 
“If US-China trade tensions continue to escalate, Thai export growth for 2019 is likely to be lower than our recent forecast of 2.7 per cent,” said Yunyong Thaicharoen, first executive vice president and head of Siam Commercial Bank’s Economic Intelligence Centre.

Sustained suffering
In particular, goods in the supply chain affected by the trade war, such as computers and parts, integrated circuits and rubber, have already shown a year-on-year contraction of 25.5, 28.8 and 18.2 per cent, |respectively, in the first quarter of this year, he said. 
In terms of investments, a drawn-out trade war would not benefit Thailand, either. If it continues, the global and regional supply chain may be disrupted, causing a net negative in investments for Thailand, Yunyong claimed. Krungthai Bank’s Global Business Development and Strategy Group predicted that Thailand’s export growth could be belowtwo per cent in 2019 as a result of the trade war escalation. 
Moreover, Thailand does not stand to benefit in terms of investment resulting from an escalation of the trade war. Most international manufacturers have already set up bases in various countries across Asia. 
Hence, they may simply start to produce more at their production bases outside China, according to Phacharaphot Nuntramas, senior vice president of the Global Business Development and Strategy Group.
Yunyong suggested that Thai exporters seek alternative markets to diversify their destinations.
“And they should also seek opportunities to benefit from substituting Chinese exports to US markets as well as US exports to China’s markets. These products include agricultural goods and auto parts for US markets and processed food, copper and hard-disk drives for China,” he said. 
The Commerce Minister said Thailand would gear its trade negotiations to open up more tariff-free opportunities for Thai exporters.