Thursday, December 03, 2020

Trump’s China tariff escalation to further shrink Thai exports

Aug 02. 2019
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By PHUWIT LIMVIPHUWAT
THE NATION

US President Donald Trump’s imposition of a 10 per cent tariff on an additional US$300 billion in Chinese imports will cause Thai exports to contract even further in 2019, economists warn.

 

“Thailand’s exports have been falling since January. The announcement by President Trump to increase tariffs on Chinese goods in September will cause Thai exports to bottom out even deeper in the fourth quarter of this year,” said Yunyong Thaicharoen, first executive vice president and head of Siam Commercial Bank’s Economic Intelligence Centre (EIC).

On Thursday, Trump announced through Twitter that the US will impose a 10 per cent tariff on the additional $300 billion worth of Chinese goods as China did not follow through on its prior agreement to purchase more US agricultural goods.

Thailand has felt the collateral damage of the superpower trade spat as the Kingdom is located in the supply chain affected by Trump’s tariffs. For instance, Thailand exports electronic parts to China that are developed further before being shipped to the US.

In the first half of 2019, Thai exports declined by 2.9 per cent year on year, dropping by US$4 billion, according to the Commerce Ministry.

The EIC predicted in July that as a result of the trade war, exports will contract by 1.6 per cent year on year in 2019. This marks a significant reduction in exports given last year’s solid 6.7 per cent growth, making it the lowest level since 2016.

However, Yunyong said, the new rounds of tariffs will have both direct and indirect impacts on Thailand’s economy, leading the EIC to reduce its export forecast in 2019 from a 1.6 per cent year-on-year contraction to a 2.3 per cent year-on-year contraction.

This has also led the centre to reducing its GDP forecast from 3.1 per cent year-on-year growth to 2.9 per cent.

Products such as fruits and processed food will be particularly impacted by this round of tariffs, he said. This is because the new round of tariffs will damage consumer sentiment in China, leading to a drop in demand for Thai agricultural products.

In the first six months of this year, exports of agricultural products declined by 2.58 per cent year on year, shedding $3 billion in value, according to the Commerce Ministry.

“Finally, the increase in tariffs will cause the global economy to slow down further, making it likely that the US Federal Reserves will lower interest rates at least once more in 2019,” Yunyong said. “This will lead to more capital inflows to emerging markets which will in turn, put pressure on the baht to strengthen even further as Thailand is seen as a safe haven for global investors.” 

The strengthening baht will dampen exports of agricultural products even further as Thai goods will become less competitive in terms of pricing, he said.

Mana Nimitvanich, first vice president of the Krungthai Bank’s Global Business Development and Strategy Group, said: “The global economic slowdown which will result from the tariff hike to be implemented in September will not only cause Thai exports to China to drop, but Thai exports to various countries around the world may also take a hit from this trade tension escalation.”

To cope with the incoming negative impacts of the recent trade war escalation, the Thai government will need to play a more active role in helping exporters maintain their current markets through pricing strategies and set up road shows as well as business matching events to help exporters find new markets, suggested Aat Pisanwanich, director of the University of the Thai Chamber of Commerce’s Centre for International Trade Studies (CITS).

For example, agricultural goods should not be more than 3 to 5 per cent more expensive than their competitors despite their higher quality, he said. This is because pricing is still the key competitive advantage for these types of products especially when being exported.

Meanwhile, Thailand will need to hold more roadshows and business matching events abroad to help exporters find new business partners and start to diversify their markets. This will help mitigate risks from the reduction of Thailand’s shipments to China, he said.

Tim Leelahaphan, an economist from Standard Chartered Bank, said: “The worsening trade war situation and its impacts on Thailand justifies the necessity for the Bt100 billion short-term economic stimulus measures from the government.”

Given the current situation, he said, the best exports can do this year is to keep growth at zero per cent.

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