Small businesses to bear brunt of cut in US GSP privileges, but all eyes on US presidential election
The US decision to cut GSP privileges for Thailand would hit some small businesses hard but not impact overall Thai exports, while the US presidential election would significantly impact Thai exports and the economy, an economist said.
The latest round of the US cutting trade privileges under the Generalised System of Preferences would not hurt Thailand’s economy much, but it would have a large impact on small businesses depending on the US market, said Anusorn Tamajai, former dean of Rangsit University’s Faculty of Economics.
Although the US government announced on Friday the cut in tax privileges under the GSP programme for Thailand starting from December on 231 products, Thai exporters actually applied for GSP for only 147 products worth about $600 million to $700 million a year, he said.
With a 4 to 5 per cent tax rate added on those products, the value of export is estimated to be $640-960 million a year. Small businesses who export auto parts, car gears, rubber-made products, chemicals and thin aluminium sheets will be hit hard. They have to find alternative markets, he said. The share prices of listed firms engaging in these products may face a decline when the market opens on Monday, he predicted.
Anusorn believed that President Donald Trump had made his decision in order to gain popularity among American farmers, especially swine farmers. The Trump administration had cited Thailand's lack of openness in the pork meat market for US products as reason for the GSP cut.
Thailand should brace for more GSP privilege cuts as Thailand currently received trade privileges on 638 products, he warned.
If Joe Biden wins the presidential election scheduled for November 3, his administration may use issues related to human rights, labour rights and democracy for bargaining on trade with Thailand, he said.
Biden has pledged to increase corporate tax from 21 per cent to 28 per cent and personal income tax for the top bracket from 37 per cent to 39 per cent, as well as introduce a capital gains tax on those who earn income of $1 million and more. The tax hike will be used to provide welfare for lower-income groups. The tax will impact large businesses. Biden, however, is unlikely to continue the trade war, and extreme nationalism of President Trump, so Biden's policies will benefit the global economy as a whole. Biden will support renewable energy and clean energy. His policy to increase the minimum wage to $15 per hour will encourage more US firms to relocate labour-intensive manufacturing to Asia, he forecast.
Biden is expected to revive the Trans-Pacific Partnership initiated by former president Barak Obama. Or he may join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, said Anusorn.
Biden’s “Buy America” would not result in trade restrictions like Trump’s “America First” or “America Great Again” does, he noted, referring to Trump's trade restrictions on China, Europe as well as Thailand.
If Trump wins the election, large corporates will benefit in the short run due to tax cuts. But Trump will intensify trade wars, which will hurt the global economy as a whole.
If the election is very close and results in a recounting of votes by a court order, the global market would be subjected to high volatility until early next year, he predicted.
If Biden wins, the US dollar is likely to weaken, and more money will flow to emerging markets and there will be a correction in the US stock markets. The rising cost for business stemming from Biden's tax increase policy will be compensated by overall freer global trade. Rising income of labour will boost domestic demand. Investment in infrastructure projects will contribute to US growth. Biden is unlikely to engage in trade conflicts with Europe, as he did not show strong opposition to Europe's attempt to collect digital taxes which will adversely impact US tech companies.
“The central bank should review its policy rate currently at 0.5 per cent and prepare for unconventional measures to deal with potential volatility in the global financial market,” said Anusorn, a former director at the Bank of Thailand.
If there is chaos in the US due to lack of clarity about the presidential election winner, it could worsen the global economy. And the Thai economy would suffer if the ongoing political crisis is not resolved peacefully. Therefore, preparing for an unconventional monetary policy is necessary, as the country's fiscal position has been weakening, he added.