Monday, August 26, 2019

Oil price could dampen gains from trade war

Nov 27. 2018
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THAILAND has a lot to gain from the ongoing global trade war, but the rising oil prices will be a cause for concern, experts cautioned yesterday.

“Thailand will benefit from manufacturers in China looking to move their production facilities to the Asean region, especially to the Eastern Economic Corridor [in Thailand],” director of the Thailand Development Research Institute (TDRI)’s Economic Intelligence Services, Kirida Bhaopichitr, said yesterday.

She was speaking at a seminar on “Understanding Industry 4.0 – Challenge and Opportunity for True Digital Transformation with Global and Thailand Economic Outlook 2018-2019” held by Deloitte Thailand. “The trade war will likely escalate as Trump has lost control of the House of Representatives in Congress after the recent midterm elections,” she said.

“This is because Trump is likely to use the trade war to increase his approval ratings among his supporters, who are mostly low income earners,” she explained. The US has imposed tariffs on Chinese imports worth some $253 billion (Bt8.35 trillion), while China has retaliated on $113 billion (Bt3.73 trillion) worth of US goods, according to the TDRI. 

The US has threatened to raise tariffs on the remaining $267 billion worth of Chinese goods coming into the country, while China can further retaliate by raising tariffs on $53 billion worth of US goods, Kirida said.

China can also use other measures to retaliate against the US such as diverting tourism away from the US, provoking North Korea, and reducing the amount of US debt holdings to hurt the global capital market, she added. 

This economic conflict hurts manufacturers of both economic superpowers, causing them to look elsewhere, such as Thailand, to produce their goods and avoid the tariffs imposed by both countries, she explained. For example, Delta Electronics (Taiwan), a power components supplier for Apple, will move its production base from China to Thailand, she said. Kirida expects the Taiwanese manufacturer to move its production base to the Kingdom in 2019. Experts from Thanachart Fund agreed with the analysis, suggesting that the trade war has caused a shift in the global supply chain. 

“As the US continues to impose higher tariffs on Chinese imports, various manufacturers based in China have been looking to move their production base to other countries,” Chotechung Teerakajornchote, first vice president, Macro Strategies, Thanachart Fund Management Co Ltd, had said at a different event earlier this month. 

For example, Daikin Industries, a Japanese company that manufactures compressors, recently moved its production base from China to Thailand and Malaysia, he explained.

The Commerce Ministry revealed earlier this month that Thailand’s exports had benefited from the economic conflict to the tune of $146 million in October this year.

There will also be an increase in the level of foreign direct investment into the Asean region, as many investors will look to the region as an alternative investment location to the US and China, Kirida added. 


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