Possible Impacts of the US China Trade Wars on Asia Economies

The on-going trade wars between the US and China since 2018 don’t seem to be ending soon. Both countries have imposed hundreds of billion dollars tariffs on each other’s imports since 2018, and there is still no final solution to the problem. Continued trade wars between the world’s largest economies may have a global economic impact with both gainers and losers. Below are some of the possible implications of the trade wars. Read more news about the topic at www.asiafundmanagers.com.

New Markets

Things could be difficult between the two countries, but there are also gainers in this rumble. The most likely gainers include European economies as well as South East Asia economies such as the Thailand economy and the Vietnam economy. The higher tariffs between the US and China will result in higher cost of import from both countries, so the importers here will look for local alternatives or look for cheaper imports from other countries.

For example, Vietnamese products such as furniture and clothing may substitute Chinese products in the US. At the same time, other East Asian companies may replace US companies in the Chinese market, especially the food market. Wealthier economies such as Malaysia will most likely benefit from higher exports for products such as electronic integrated circuits that were primarily sourced from China.

Scramble for Investors

Another probable result of the trade wars is the global companies in China may diversify their operations in ASIA, and their most likely alternatives are South East Asia countries, especially Vietnam and Thailand. Prolonged conflicts between the two countries will most likely lead to a mass exit of multinationals from China to other countries because the tariffs will make products made in China expensive for US consumers.

The wealthier countries like Taiwan and Malaysia will try to lure back manufacturers in advanced manufacturing sectors such as electronics. Low-income economies such as Vietnam and Cambodia, on the other hand, will target the low-income industries such as clothing, footwear and food processing.

Other Asian economies such as India could also be a good alternative for companies exiting China, but the India economy is less likely to benefit. India has a lot of foreign investment discouraging factors like policy barriers to large scale production, the country’s strict labour laws, weaker India currency, complicated permitting process and land-acquisition challenges. indian economy growth is mostly service driven as there are little foreign investments in the manufacturing sector.

India’s new approaches such as the recent cut in corporate tax may increase the country’s attractiveness, but at a little margin due to lack for policies to correct other challenges such as land acquisition challenges and restrictive labour laws.

Trade Loss for Asian Economies

Asian countries may benefit from the substitution, but they will also lose as a result of a decline in trade with China. China sources most of its parts and components from Asian countries, which they assemble for export to the US as the primary market. The decline in trade between China and the US means that there will be less demand for their components in China.

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