Trade War the USA VS China: Which Consequences for Thailand?

Described as “the greatest trade war in economic history“, the conflict between the United States of America and China does not see an end and may well affect more countries than expected, especially in Southeast Asia.

The Trade War between Trump and China

« The trade war between the United States and China is declared. », 6th July 2018, Capital

« With new US tariffs, China retaliates. », 23rd August 2018, Le Temps

« Trump announces 10% tax on 200 billion Chinese goods. », 18th September 2018, Europe 1

It is an avalanche of titles one more revealing than the others which breaks in the world press since the beginning of this year 2018 which was particularly marked by the arm wrestling of two economic giants: the United States and China. This trade dispute is punctuated by tariff increases and threats made between the two powers, launched under the presidency of Donald Trump.

HISTORY

22nd January 2018: Donald Trump is implementing a “4-year” customs tax plan of 20% on washing machines and 30% on solar panels.

ED : China is the world’s largest producer of solar panels, and the largest exporter of washing machines to the United States.

8th March 2018: The United States sets tariffs of 25% on steel and 10% on aluminum, but draws up a list of countries temporarily exempt from this tax such as: the European Union, Mexico, the United States Canada, Argentina, Brazil, South Korea … excluding Japan and China.

22nd March 2018: More than 1,300 products among flat screens, weapons, satellites, medical equipment, auto parts, and batteries are subject to a $ 60 billion tariff increase decided by Trump.

23rd March 2018: China unveils more than 128 products subject to tariff increases ranging from 15% to 25%. These products constitute a trade volume of $ 50 billion between the two giants.

16th April 2018: The US government bans the use of US-origin goods or services by ZTE, a major Chinese producer of cell phones and telephone equipment for 7 years.

June 2018: Trump imposes tariffs on China of 25% on 800 different types of products, on a volume of imports of 50 billion dollars. In response, China announces similar sanctions on 659 types of products, including cars, seafood and soybeans.

6th July 2018: Customs duties of 25% are put in place on $ 34 billion of imports on the $ 50 billion announced.

August 2018: The US Congress passes a law banning the use by the various US administrations of any material from Huawei, ZTE, Hikvision, Dahua Technology and Hytera Communications. In addition, the two giants put in place customs duties each on their side on $ 16 billion of imports in addition to those set up in July 2018.

September 2018: The United States sets up a series of 10% customs duties on 200 billion Chinese import volumes. In response, China sets tariffs of 5% to 10% on a volume of 60 billion US imports.

WHY?

What is driving US power to repeatedly attack the Chinese giant? Donald Trump thought it very simply: seeing the US trade deficit with China, he has little to lose by starting a trade war.

In fact, US imports into China amount to 150 billion, while Chinese imports to the United States reach 500 billion. Trump therefore has much more material to tax, China will be short of argument more quickly.

THE SWEET MANNER? 

In August 2018, China lodged a complaint with the World Trade Organization – the only international organization that deals with the rules governing trade between countries – to challenge the entry into force of customs duties. To date, we do not know if this request has or will succeed.

The Possible Worldwide Repercussions

For the moment, the damage inflicted by this showdown on the Chinese economy is less, and represents between 0.2% and 0.5% of Chinese GDP *.

* Gross Domestic Product: an economic indicator that measures the domestic economic output of a country.

Nevertheless, given the apparent durability of this trade war – a constant increase in US tariffs on Chinese imports, and China’s retaliation to be expected in response – economic costs and consequences may be expected.

« When elephants fight, it’s the grass that suffers. », Jean-Luc TOURNIER

This trade war could affect countries around the world in an indirect way.

If the Chinese economy is affected, the global economy could suffer.

THE CASE OF APPLE

The increase in customs duties is having a major impact on the technology sector, which has a large number of parts manufactured in China, making it one of the biggest losers in this history.

The Apple brand is the perfect example of the domino effect that this conflict could have in the long run. The company is highly dependent on China via the 10,000 people it employs. Faced with the economic stakes of this trade war, Apple has lamented in a letter to the US Congress the inevitable increase in its prices in the United States in order to balance the new taxes.

… and the only answer the company got is a scathing tweet from Donald Trump himself.

Although this scenario is not yet seriously considered, it could be dangerous for the Chinese power. If American companies were to be forced to change their supply chain to protect themselves from these American taxes, the economic and professional consequences for China would be very serious.

… But way further that China, most US technology companies have their products assembled in Southeast Asia for obvious cost reasons – labor and components. Such a change could be catastrophic.

What about Thailand?

For the moment, the potential effects of international trade between China and the United States on Thailand remain complex to measure.

The Kingdom of Siam also supplies Chinese companies that export to the United States, so it could be directly impacted by this tussle.

HOWEVER, Thailand’s strong point is that it does … in a rather marginal way. In other words, the country could not avoid having a negative impact of the scenario previously stated,

BUT these impacts would be limited and much less important than for other countries in Southeast Asia.

Would the fallout be only negative for Thailand?

NO. The entire country could benefit from this trade war by simply welcoming companies looking to leave China to escape the taxes decided by Trump.

THE CASE OF HARLEY DAVIDSON

To leave China to escape these customs taxes? That’s exactly what Harley Davidson decided to do. The firm has already built a motorcycle factory in Thailand in 2018 to supply the Asian market without any risk of direct consequences of China’s retaliation against the United States.

In addition to the customs taxes avoided, this move also helped to reduce transportation time, to consider wider penetration of the Asian market and also to consolidate their responsiveness on the spot.

In conclusion, this standoff between the two titans of the modern world does not represent a real imminent danger for Thailand. On the contrary, many companies can see the Kingdom of Siam as the promise of a new future saved from taxes that do not seem to falter.

Thailand has many things to offer these potential newcomers, and would only continue the road of future third megalopolis of Asia.

… business to follow

Source – Wikipédia

Source – Le Temps

Source – Capital

Source – Europe 1

Source – La Tribune

Source – ThailandeFR