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Asia-Pacific

Beneficiaries of the Next Round of Trade Tariffs

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Last month, the US imposed a second wave of tariffs on Chinese goods worth $16bn and China immediately responded in kind. This is in addition to the tariffs on $34bn worth of goods, which took effect in July this year.

 

As the US’s proposed 25% tariff on $200bn of Chinese imports is due to complete its public hearings and comments by 6 September, Citi analysts point out that the $200bn list of over 6,000 items contains more consumer goods and industrial supplies – furniture, vehicle parts as well as metal and leather products – as compared to before.

 

While Mexico and Canada seem to be bigger beneficiaries of the trade dispute between US and China – assuming NAFTA issues are sorted – the ASEAN economies of Vietnam, Malaysia and Thailand also stand to benefit as they overlap with China on exporting similar electronics-related products to the US.

 

Vietnam’s increased opportunities also come from furniture, leather products and seafood; Malaysia’s from furniture and vacuum cleaners; and Thailand's from rubber tires, seafood and motor vehicle parts.

 

With a broader category of Chinese goods being targeted and not just concentrated in electronics, Citi analysts believe the production relocation beneficiaries now extend beyond Vietnam, Malaysia and Thailand into Turkey, India, Taiwan and Indonesia.

 

 

In Asia, Citi analysts find that Singapore could now be the most vulnerable due to supply chain linkage exposure to the $200bn worth of Chinese goods – followed by Taiwan and Korea.

 

Although Thailand and Malaysia are also exposed to this vulnerability, Citi believes they may do relatively better due to their ability to offset the negative effects with trade diversion benefits and/or production relocation prospects.

 

According to Citi analysts, India and Indonesia also look relatively insulated to these tariffs given very low supply chain risk exposure and potential benefits if their overlapping industries with China can benefit from production relocation. Citi is overweight on emerging markets equities.

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