US-China trade war could be good for South-east Asia, DBS economist argues

OCTOBER 01, 2018 - 6:29 PM

SOUTH-EAST Asian economies could benefit from a trade war between the United States and China, DBS senior economist Irvin Seah has said, in a report on the silver lining for Singapore.

In the meantime, he called on companies to capitalise on free trade agreements (FTAs) and diversify their exposure within the Asean regional bloc.

Mr Seah said that US businesses unable to afford Chinese imports could turn to suppliers in Vietnam, Cambodia, Thailand, Malaysia and Singapore, “as the trade war is largely bilateral in nature”.

“Beyond the obvious better trade terms for their exports to the US, these countries could potentially see more in-flows of foreign investment as companies reassess their global supply chains in the medium term,” he added.

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“Specifically, countries such as Vietnam, Cambodia and Thailand, with manufacturing cost structure similar to China, could see more demand for their exports, as well as investments by Chinese companies looking to circumvent the US tariff wall.

“Being a regional shipping and financial hub, Singapore could see positive spin-offs in terms of demand for its re-exports, logistics and financial intermediation services.”

Mr Seah also pointed to a slew of FTAs that could give countries a leg up in trade. These include Asean’s regional agreements with partners such as China, India and South Korea; the Trans-Pacific Strategic Economic Partnership among Brunei, Chile, Singapore, and New Zealand; and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

“The element of certainty that these FTAs provide, particularly against the backdrop of an increasingly challenging trade landscape, will also enhance Singapore’s appeal as a strategic investment destination for multinational companies hoping to diversify their operations to South-east Asia,” he said.

He noted that Singapore’s trade structure has been “skewed towards China over the years”, with “relatively limited” export exposure to Asean, and added: “As much as bringing about more opportunities for Singapore companies, stronger foreign investment flows into Asean could also stoke more competition.”

Mr Seah said that the US-China trade war could be seen as a rebalancing of regional trade and investment dynamics for South-east Asia, arguing: “While some economies could lose out, the reshuffling of supply chains and diversification of sourcing locations by global companies in response to such disruptions could in fact present others with opportunities.

“The key lies in how economic entities (both companies and economies) respond and reposition themselves in this new environment.