Other Asian economies would suffer more than China’s if US President Donald Trump does deliver on his threats to slap US$150 billion of tariffs on shipments from the world’s biggest trading nation.
That is according to Bloomberg economists Fielding Chen and Tom Orlik, who estimate that for every 10 percent drop in China’s exports, the GDP growth rate of Asian economies would fall 1.1 percentage points on average. China’s would decrease by just 0.3 percentage point.
Other Asian economies would be hit hard if China exports fall 10 percent and it scales back imports of components.
Taiwan, Malaysia and South Korea would suffer most, with GDP growth down 1.9 percentage points, 1.3 percentage points and 0.9 percentage point respectively, they said in a note on Friday.
Indonesia and India would likely be more resilient because they have more limited manufacturing capacity, they said.
The damage would be compounded should China cut imports for domestic demand.
With that factored in, Taiwan, Malaysia and Hong Kong GDP growth would fall 3 percentage points, 2.1 percentage points and 1.8 percentage points respectively, Chen and Orlik said.
Japan would see a 0.4 percentage point drop, they said.
China would suffer less than many neighbors because it has become less dependent on exports; the impact looks easy to manage given estimates of 6.5 percent growth this year, they added.
While any trade agreement reached between the US and China could alleviate certain concerns about falling shipments to China from other Asian economies, there are concerns if China’s committment to increase imports from the US would cause Taiwan and South Korea to be squeezed by the US in the Chinese market.
However, “the risk is low,” Ma Tieying, a Singapore-based economist at DBS Bank Ltd, wrote in a report on Tuesday.
“On the surface, diverting imports from South Korea and Taiwan to the US will be an effective way to help China reduce trade imbalance with the US,” Ma wrote. “A closer look, however, suggests that it may not be easy for China to substitute imports from South Korea/Taiwan with US products in the short term.”
DBS statistics showed South Korea and Taiwan are China’s biggest suppliers of machinery and electrical equipment, accounting for 18 percent and 16 percent in China’s related imports respectively, far above the 5 percent for the US.
Ma said China’s high reliance on electronics imports from South Korea and Taiwan is partly structural, owing to their geographic proximity, close investment ties and the establishment of an intertwined and sophisticated regional electronics supply chain over decades.
It also reflects intra-company supplies, meaning that the purchases of key components by the South Korean and Taiwanese electronics firms based in China from their parent companies, she said.
Therefore, should China further remove trade barriers to facilitate the US imports, the impact would be largely reflected in non-electronics products, Ma said, referring to footwear, textiles, fuels, agricultural goods and metals — these are not the key items that China imports from South Korea and Taiwan.
“As such, the substitution effect should be limited,” she said, noting that the actual impact on South Korea and Taiwan would depends on the concrete details of the ongoing trade talks between the US and China. |
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