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Asean majors: victims or victors?
With a roar and a (rupiah) whimper
By most metrics, Indonesia appears to be worst off. Foreign investor outflow has wreaked havoc on the country's financial markets with the rupiah on free fall - it has lost 9 per cent this year - which could pile the pressure on its central bank to raise interest rates further.
"Indonesia, by dint of its higher-than-average external foreign debt, fiscal deficits, and current account deficits, probably qualifies as the most exposed, and through the currency, GDP and exports," says Rob Carnell, ING Asia Pacific's chief economist and research head.
Still, he is quick to add that "Indonesia is nothing like Turkey" and structurally, "far stronger". Its sizeable domestic market - Indonesia is the world's fourth most populous country with over 260 million people - could offer some shelter from a trade war vis-a-vis other more open peers such as Singapore, Malaysia and Thailand.
Gain: As the prospect of higher palm oil exports looks bright as Beijing seeks cheaper alternatives to more expensive soya bean imports from the United States in the aftermath of tit-for-tat tariffs, Indonesia, the world's biggest producer of palm oil could enjoy some upside.
Pain: Base metals and articles is the third top Indonesian export to China. OCBC Research points out that metal duties from US could see China dumping excess products to other trade partners which could harm Indonesia's domestic industry.
The US tariffs might hamper the local industry on the back of diverted steel exports from other manufacturing countries, especially that of China.
Win some, lose some
South-east asia's third largest economy - and also the third wealthiest after Singapore and Brunei, according to the World Bank - is an export-reliant and diversified economy. It proved resilient amid an oil price slump from 2014-2016, owing to fiscal reforms- it ditched fuel subsidies and introduced a new goods and services tax.
Now, still fresh from the shocking May polls and under a new government led by PM Mahathir Mohamad, reforms have been reversed, with big-ticket infrastructure projects shelved to address ballooning debt. The looming trade war could hurt international trade - a linchpin of the economy.
Malaysia can do one of two things: give up on its fiscal targets to keep growth (this will be frowned upon by investors and ratings agencies, and could make it vulnerable to capital outflows, weaker currency and sovereign credit downgrades) or cut spending that could impair growth.
Not an enviable place.
Analysts also deem the Malaysian ringgit as a "commodity currency", which makes it more sensitive to trade fluctuations. Higher tariffs could drive up the cost of raw materials and intermediate goods and limit final demand.
Gain: China has imposed tariffs against US soya beans. As a substitute to the crop, demand for palm oil could rise which could be sweet for Malaysia - as well as Indonesia - two of the world's largest palm oil producers.
Pain: The US move to slap tariffs on all imported solar modules and cells could hurt as Malaysia is the largest photovoltaic (PV) exporter to the US with a one fourth market share. This could erode its market share and margins and put off foreign PV firms that were planning to set up base in Malaysia.
Its strength is also a weakness
The city state's strength - it is the world's second most open economy - is cited as an economic miracle given its scarce natural resources and tiny size. Amid a wobbly global environment though (read: trade war that harms global consumption, investment and disrupts trade flows), this can quickly turn into a weak spot.
"Being rich is not necessarily a defence, if you are also highly open and dependent on trade, as is the case for Singapore and Hong Kong," says ING in a report.
China is Singapore's largest trading partner followed by Malaysia and the US. On the back of its reliance on trade and manufacturing activities, the Singapore economy could get hit if regional trade flows decline.
Some private-sector economists have already flagged downside trade risks to Singapore's growth, barring which they expect the economy to grow 3.2 per cent this year - not too far off the government's 2.5-3.5 per cent growth projection.
Gain: Singapore dollar is regarded as a safe haven. Amid a sell-off among EM assets due to trade war concerns, it could gain.
On the flipside, if manufacturing and trade picks up in Asia due to China shifting some production offshore, analysts say Singapore could be on the receiving end of a pick-up in maritime activity and shipping deliveries, given its long-enjoyed status as a transport and logistics hub.
Pain: According to OCBC Research, the industries most likely to be affected include the electronics, chemicals, and maritime & shipping industries. For non-manufacturing sectors chiefly finance, increased market volatility may lead to capital flight.
US and China are Manila's biggest trading partners. Moreover, about 17 per cent of the Philippines' exports are part of China's value chain (goods that serve as input to China's exports, according to RHB Bank).
While the country's trade exposure to the two superpowers is high, it may be somewhat buffered from trade fluctuations, vis-a-vis regional peers, as strong domestic demand has long sustained the country's growth. Policy buffers such as sizeable foreign exchange reserves and low external debt to GDP ratio are comforting given the external risks of rising trade protectionism and heightened volatility in financial markets. The peso is one of the region's worst performers this year, down 8.4 per cent so far.
Faced with rising tariffs in the West, Chinese firms might want to diversify the market for its goods and relocate to other destinations in Asean. If this happens, the Philippines is deemed an attractive destination, namely in car manufacturing, electronics and business process outsourcing and other small and medium-sized businesses.
Gain: China's efforts to hit back at US pork products may be good news for alternative suppliers such as the Philippines. As China seeks to divert its supply of steel to other markets on the back of higher US tariffs, other buyers of the metal such as the Philippines may benefit from lower prices of steel products if a glut arises. Its semiconductor industry, deemed a ready source of electronic parts for Asean, could get a boost if China decides to shake up its semiconductor supply chain and hunt for more viable sources.
Pain: US and China are big export destinations for the Philippines' electronics. A trade war could weaken orders and harm the sector.
Opportunities in crisis
Experts reckon Thailand could be caught in the US-China crossfire given that it is deeply integrated into China's supply chain.
For now, analysts still seem sanguine over Thailand's growth on the back of a recovery in domestic consumption and infrastructure investments which could offset the adverse impact of a global trade spat.
On the flip side, the threat of the US-China global trade war appears to be providing some hope for the "Detroit of Asia" and the world's fifth biggest food exporter.
All in all, analysts say Thailand may be fairly insulated from the trade tensions given that a majority of its exports are primary products.
Gain: Thailand's exports of fresh and processed fruit to China are expected to receive a boost following the Chinese tariffs on US agricultural products that would make US fruits more expensive.
As the largest automotive player in Asean, Thailand could be a winner if companies decide to shift their manufacturing base to the low-cost hub to offset rising costs from the higher tariff burden.
Pain: Thailand's intermediate goods for electronics that are part of the supply chain of final products assembled in China face downside risks from the US tariffs on intellectual property, says OCBC.
READ MORE: Trading blows