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SINGAPORE (Apr 5): CIMB says there are more winners than losers in Asean – among Malaysia, Indonesia, Singapore and Thailand (MIST) – in the escalating trade war between US and China.
Malaysia, Singapore and Thailand are particularly well placed to benefit from the displacement of demand for product categories in which it competes with China and US if their tit-for-tat tariff measures are implemented to the letter.
These include electronics and electrical (E&E), machinery, chemicals, aircraft parts, rubber tyres and medical equipment.
However, some sectors like TVs, PCs and hard-disk drives will face disruptions in the supply chain for intermediate and capital goods that it exports directly or via other countries to China and eventually destined for the US.
Among MIST, Indonesia is relatively insulated from US-China trade tensions due to its low exposure to E&E and machinery exports.
Meanwhile, Indonesia and Malaysia are well placed to take advantage of China’s proposed tariff on soybean imports from the US as the two largest exporters of palm oil, which is a substitute for edible oil.
To recap, the US Trade Representative’s office (USTR) has proposed a 25% tariff on 1,333 types of imports from China worth US$50 billion ($65.6 billion) – equivalent to 2.1% of total US imports – in retaliation for what it alleges to be the “forced transfer of US technology and intellectual property” by China.
Markets are bracing for further sanctions as the US Treasury is due to revert in the coming weeks on measures to address investments by China in "sensitive" industries or technologies, and whether to label China a currency manipulator.
On Wednesday, China countered the US by announcing that it would levy 25% tariffs on imports of 106 US products including soybeans, automobiles, chemicals and aircraft, in response to proposed American duties on its high-tech goods. Officials also indicated that the timing of China’s duties will coincide with the implementation of US tariff measures.
The tariffs are unlikely to go into effect until late May at the earliest, as the USTR allows a 30-day period for public comments, and a hearing on the proposal has been scheduled for May 15.
In a Thursday report, analyst Michelle Chia says, “We suspect that, like in previous sanctions against washing machines, solar panels, steel and aluminium, the provisions in this proposal will likely be watered down. Rather, this may be a bargaining chip to negotiate for reduced tariffs and non-tariff trade barriers in China to US exports and improved market access for US companies.”
The International Monetary Fund (IMF) estimates that a 10% rise in import tariffs applied by the US and the rest of the world would depress global trade by 1% and world GDP by 0.5%, i.e. tit-for-tat protectionism is a negative-sum game.
Financial markets have reacted adversely to the prospects of escalating trade tensions that may trigger contagion effects, tighten global financial conditions and erode tailwinds from last year’s trade-led, synchronised recovery.