ASEAN could benefit at China’s expense
At a recent ASEAN summit, it was observed that “perhaps one day ASEAN would have to choose between US or China.”
ASEAN, with a population of 630 million having a combined GDP of $2.4 trillion, forms the fourth largest export market for the US. It could benefit from the trade dispute between the US and China.
The dispute, driven by US tariff measures, primarily targets intermediate goods in the electronic and machinery sectors. It favours the countries of ASEAN, which have strong regional trade ties in the form of free-trade agreements (FTAs) along with the recently agreed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The impact will be felt strongly in the sectors of information and communication technology (ICT), automotives and readymade garments (RMGs). These sectors also constitute major segments in US-China bilateral trade.
A report produced by the EIU on “Creative disruption: Asia’s winners in the US-China Trade War”, offers interesting insights into the effects of the trade dispute. The US has imposed tariffs on ICT, being its largest import from China, amounting to $150 billion. The aim is two-fold: to cut the trade deficit with China; and to obstruct the Make in China development agenda of 2025, which formulated to enhance its key technological innovations. Malaysia and Vietnam will benefit most, especially in the manufacturing of consumer goods such as mobile phone and laptops. Major ICT companies such as Dell, Sony, Panasonic, Samsung and Intel have their presence in these countries. The presence of strong trade infrastructure, corporate laws, and an SEZ environment makes Malaysia and Vietnam potential locations for the ICT industry. Benefits may accrue to India, Indonesia and Thailand, given their ICT exports-oriented market.
The US is the largest destination for auto parts and automotives. “International Trade Centre statistics indicate that finished vehicle exports accounted for only 0.3 per cent of China’s total exports in 2017, at a value of $7.2 billion. The impact of the trade war on Chinese auto-parts exports, which were worth $31 billion over 2017, will be greater”, the report observes.
Thailand and Malaysia will benefit most from the trade dislocation in automotives. In Thailand, trade links in the automotive sector are well diversified with exports to the US, Japan and other ASEAN counterparts. The medium term benefits will be reaped by India, Indonesia, the Philippines and Vietnam. Japan, Singapore, South Korea and Taiwan will be minimally impacted. For Asian markets, the bigger concern is tariffs on steel and aluminium and the Section 232 report of the US Department of Commerce.
Out of $257 billion annual Chinese textile and apparel exports, $38.7 billion went to the US market. As per WTO, in 2016, China accounted for 36.2 per cent of global textile and 34.5 per cent of clothing exports. Bangladesh, India and Vietnam will gain from the trade tension in RMGs. India has the potential to attract the apparel market. Mild benefits may go to Pakistan and Sri Lanka.
With rising concerns over land and labour in China, nations in South and South-East Asia are preferable markets for MNCs and private enterprises to establish their manufacturing base. The ongoing US-China trade conflict shifts the export manufacturing site from China to Asian markets. However, greater benefits to ASEAN may be expected only in 2020 or later.
