Export growth tipped to halve in fallout from trade conflict
AN ESCALATION of the US-China trade war is likely to slash growth in Thai exports to less than half that of last year, said economists from Krungthai Bank and Standard Chartered Bank.
Last Sunday, US President Donald Trump tweeted: “For 10 months, China has been paying tariffs to the US of 25 per cent on $50 billion of High Tech, and 10 per cent on $200 billion of other goods. These payments are partially responsible for our great economic results. The 10 per cent will go up to 25 per cent on Friday on $325 billion.”
Krungthai Bank’s Global Business Development and Strategy Group predicted back in January that Thailand’s exports would grow by 4 per cent in 2019, a decrease from last year’s 6.7 per cent.
However, after weak export performance in the first quarter of this year, they have revised down their export growth forecast to a mere 2 per cent.
“If the tariffs President Trump threatened are implemented, Thai export growth in 2019 could go below 2 per cent,” said Phacharaphot Nuntramas, senior vice president of the Global Business Development and Strategy Group, during an interview with The Nation.
“The increase in tariffs from 10 per cent to 25 per cent, as threatened by President Trump, includes electronic parts produced in Thailand, sent to China for further processing before being exported to the US,” he explained.
Yuan to depreciate
Phacharaphot said the Chinese yuan will depreciate as a result of the higher tariffs, to absorb the rise in the prices of Chinese exports. However, the yuan depreciation will not be able to fully absorb the impacts from the rise in US tariffs, which in turn will lead to further economic setbacks for both Thailand and China.
He urged Thai exporters to focus more on risk management amid the volatile market conditions. Demand from the US, China and other regions could change as the global economy may slow down further if these tariffs are implemented, he said.
Meanwhile, he suggested the public sector step up their efforts to penetrate new markets with high growth potential for Thai exporters to diversify their destinations.
Further integration with the Asean region would also help in the long term, considering that Thailand is this year’s Asean Chair. Currently, some 20 per cent of Thai exports are shipped to the Asean region each year. However, this solution alone will not be able to mitigate the immediate negative impacts from the trade war, he said.
Phacharaphot stated that 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 that are not located in China, he continued.
If tariffs on Chinese goods are raised, the global economy will slow down and global demand will also fall. This may not necessitate the relocation of manufacturing bases.
Standard Chartered Bank adopts a more optimistic view, maintaining its export growth forecast for 2019 at between 3 and 4 per cent.
“It is still too early to say whether the potential escalation of the trade war from President Trump’s tweet will cause Thai exports to dip below 3 per cent growth this year,” said Tim Leelahaphan, Standard Chartered Bank’s economist, during a separate interview.
“However, the impacts of the trade war on the Thai economy have been negative overall since the middle of last year. If tariffs are further increased between the US and China, it will definitely have negative impacts on the Thai economy,” he stated.
Leelahaphan noted that the trade war has caused the Chinese government to use various measures to stimulate its economy, causing Chinese demands for consumer products to increase. “From here, we see that Thai exports of agricultural goods to China have increased continuously in 2019,” he said.
Leelahaphan concurred with Phacharaphot, arguing that investment diversion into the Kingdom may not increase as a result of the trade war escalation as many manufacturers may already have a production base in Thailand.
“Although there is potential for investment diversion, it is more likely that there will only be a shift in production volume instead of a full relocation of production bases from manufacturers in the region,” Leelahaphan said.
He urged exporters to prepare their capabilities and capitalise on the opportunities that arise from the trade war, such as replacing Chinese goods in the US market to make up for the reduced shipment orders to China or exporting more to the Asean region.
Furthermore, the government should strengthen the economic fundamentals of the country to create a buffer against the negative impacts of the trade war, such as promoting tourism and investment throughout the year, Leelahaphan said.
