Thailand to get hit by China-US trade war, Vietnam to benefit

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Thailand To Get Hit By China-us Trade War, Vietnam To Benefit

Thai exporters will pay a heavy price due to the escalation of the US-China trade war, which will also have a negative impact on Thailand’s economy, according to experts.

On May 10, the US launched a new round of tariffs on Chinese imports. President Donald Trump tweeted: “Talks with China continue in a very congenial manner – there is absolutely no need to rush – as Tariffs are NOW being paid to the United States by China of 25 per cent on $250 billion worth of goods and products. These massive payments go directly to the Treasury of the US.”

The US tariffs target technological goods such as machinery parts, electrical circuits and auto parts that are manufactured in Thailand. These goods are then shipped to China, from where they are exported to the US after value addition, according to the National Economic and Social Development Council.

The implementation of more tariffs could be a part of the US strategy to gain leverage in negotiations with China, acting Thai Commerce Minister Chutima Bunyapraphasara said.

“The increase in tariffs is a demonstration by the US that President Trump is willing to act on his threats,” said Chatree Rojana-Arpa, executive vice president for strategy and product development at KTB Securities (Thailand).

“President Trump wants to use this move to negotiate with China from a favourable position,” he continued. “If there is progress in the negotiations, the tariff rates will likely be brought down.”

This sentiment is reflected in Thailand’s capital market, which has not taken a significant hit from the trade war escalation. This is because investors are still expecting the tariffs to come down in the near future as US-China trade negotiations make progress, Chatree said.

On the other hand, a drawn-out escalation of the trade war would further hamper Thailand’s exports, which have been performing poorly in 2019.

In the first quarter of this year, Thai exports were valued at $61 billion, a 1.64-per cent contraction compared to the same period last year.  In 2018, Thai exports grew by 6.7 per cent year on year. As a result of the trade war escalation, various financial institutions have cut their export forecasts for 2019 to less than half of last year’s growth.

In particular, goods in the supply chain affected by the trade war, such as computers and parts, integrated circuits and rubber, have already shown a year-on-year contraction of 25.5, 28.8 and 18.2 per cent, respectively, in the first quarter of this year, he said.

In terms of investments, a drawn-out trade war would not benefit Thailand, either. If it continues, the global and regional supply chain may be disrupted, causing a net negative in investments for Thailand, Yunyong claimed. Krungthai Bank’s Global Business Development and Strategy Group predicted that Thailand’s export growth could be belowtwo per cent in 2019 as a result of the trade war escalation.

Moreover, 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 outside China, according to Phacharaphot Nuntramas, senior vice president of the Global Business Development and Strategy Group.

Yunyong suggested that Thai exporters seek alternative markets to diversify their destinations.

Meanwhile, foreign investors have continued to flock to Vietnam’s factory districts as the trade war between the US and China approaches its second year.

Trump’s threats to deepen the US-China trade war with further tariffs could accelerate the inflow of manufacturing investment, but those who have chosen to “wait and see” so far my face a more competitive environment as factory districts fill up, analysts have said.

Many manufacturers in China considered shifting more production to Southeast Asia after the two sides started their tariff tit-for-tat, fearing the impact of higher levies on Chinese-manufactured goods on sales to the US market.

Investment in Vietnam, particularly in light, labour-intensive manufacturing, has boomed since last year. Newly registered investments in the country are up by 81 per cent, and capital contributions, used to fund new facilities, are up by 215 per cent, according to government data from April. US-bound exports also rose by 28.8 per cent in 2019 compared with last year.

The trend is only expected to gain momentum in third and fourth quarters of this year as the newly established factories start operating, according to Maxfield Brown, senior associate with Dezan Shira & Associates in Ho Chi Minh City.

But the surge in investment has also caused growing pains, which are expected intensify in the near future, but those who did not make an early move may find it harder to relocate.

“Those that took a wait-and-see approach in 2018 are facing increasing pressure from competitors that have moved production elsewhere and stand a higher chance of following suit the longer trade tensions continue,” said Brown.

But he warned that Vietnam’s infrastructure networks, labour pools, and local suppliers are all being “pushed to their limit” as investment continues to climb in traditional manufacturing hubs around Ho Chi Minh City and Hanoi.

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Thai exporters will pay a heavy price due to the escalation of the US-China trade war, which will also have a negative impact on Thailand’s economy, according to experts. On May 10, the US launched a new round of tariffs on Chinese imports. President Donald Trump tweeted: “Talks with China continue in a very congenial manner – there is absolutely no need to rush – as Tariffs are NOW being paid to the United States by China of 25 per cent on $250 billion worth of goods and products. These massive payments go directly to the Treasury of the US.”...

Reading Time: 3 minutes

Thailand To Get Hit By China-us Trade War, Vietnam To Benefit

Thai exporters will pay a heavy price due to the escalation of the US-China trade war, which will also have a negative impact on Thailand’s economy, according to experts.

On May 10, the US launched a new round of tariffs on Chinese imports. President Donald Trump tweeted: “Talks with China continue in a very congenial manner – there is absolutely no need to rush – as Tariffs are NOW being paid to the United States by China of 25 per cent on $250 billion worth of goods and products. These massive payments go directly to the Treasury of the US.”

The US tariffs target technological goods such as machinery parts, electrical circuits and auto parts that are manufactured in Thailand. These goods are then shipped to China, from where they are exported to the US after value addition, according to the National Economic and Social Development Council.

The implementation of more tariffs could be a part of the US strategy to gain leverage in negotiations with China, acting Thai Commerce Minister Chutima Bunyapraphasara said.

“The increase in tariffs is a demonstration by the US that President Trump is willing to act on his threats,” said Chatree Rojana-Arpa, executive vice president for strategy and product development at KTB Securities (Thailand).

“President Trump wants to use this move to negotiate with China from a favourable position,” he continued. “If there is progress in the negotiations, the tariff rates will likely be brought down.”

This sentiment is reflected in Thailand’s capital market, which has not taken a significant hit from the trade war escalation. This is because investors are still expecting the tariffs to come down in the near future as US-China trade negotiations make progress, Chatree said.

On the other hand, a drawn-out escalation of the trade war would further hamper Thailand’s exports, which have been performing poorly in 2019.

In the first quarter of this year, Thai exports were valued at $61 billion, a 1.64-per cent contraction compared to the same period last year.  In 2018, Thai exports grew by 6.7 per cent year on year. As a result of the trade war escalation, various financial institutions have cut their export forecasts for 2019 to less than half of last year’s growth.

In particular, goods in the supply chain affected by the trade war, such as computers and parts, integrated circuits and rubber, have already shown a year-on-year contraction of 25.5, 28.8 and 18.2 per cent, respectively, in the first quarter of this year, he said.

In terms of investments, a drawn-out trade war would not benefit Thailand, either. If it continues, the global and regional supply chain may be disrupted, causing a net negative in investments for Thailand, Yunyong claimed. Krungthai Bank’s Global Business Development and Strategy Group predicted that Thailand’s export growth could be belowtwo per cent in 2019 as a result of the trade war escalation.

Moreover, 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 outside China, according to Phacharaphot Nuntramas, senior vice president of the Global Business Development and Strategy Group.

Yunyong suggested that Thai exporters seek alternative markets to diversify their destinations.

Meanwhile, foreign investors have continued to flock to Vietnam’s factory districts as the trade war between the US and China approaches its second year.

Trump’s threats to deepen the US-China trade war with further tariffs could accelerate the inflow of manufacturing investment, but those who have chosen to “wait and see” so far my face a more competitive environment as factory districts fill up, analysts have said.

Many manufacturers in China considered shifting more production to Southeast Asia after the two sides started their tariff tit-for-tat, fearing the impact of higher levies on Chinese-manufactured goods on sales to the US market.

Investment in Vietnam, particularly in light, labour-intensive manufacturing, has boomed since last year. Newly registered investments in the country are up by 81 per cent, and capital contributions, used to fund new facilities, are up by 215 per cent, according to government data from April. US-bound exports also rose by 28.8 per cent in 2019 compared with last year.

The trend is only expected to gain momentum in third and fourth quarters of this year as the newly established factories start operating, according to Maxfield Brown, senior associate with Dezan Shira & Associates in Ho Chi Minh City.

But the surge in investment has also caused growing pains, which are expected intensify in the near future, but those who did not make an early move may find it harder to relocate.

“Those that took a wait-and-see approach in 2018 are facing increasing pressure from competitors that have moved production elsewhere and stand a higher chance of following suit the longer trade tensions continue,” said Brown.

But he warned that Vietnam’s infrastructure networks, labour pools, and local suppliers are all being “pushed to their limit” as investment continues to climb in traditional manufacturing hubs around Ho Chi Minh City and Hanoi.

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1 COMMENT

  1. Why vietnam? I can see any reasons why investors don’t choose Malaysia instead where cost are lower, talent pool is higher with almost everyone speaks English and many speaks chinese. U can deal both with china and american clients if you’re based in Malaysia. Go over to vietnam or thailand over the weekend for ‘i love you long time happiness”

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