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Singapore, Malaysia among exporters most at risk in US-China trade war: Fitch Solutions
ASIAN export-reliant economies such as Singapore, Taiwan, South Korea, Vietnam and Malaysia will be the hardest hit by waning demand for Chinese-made products and supply chain disruptions amid escalating US-China trade tensions, Fitch Solutions Macro Research said on Tuesday.
This is because many of these exporters are deeply integrated with China’s supply chains, supplying electronics, parts and machinery as inputs for Chinese factories, which then assemble and re-export electronic products to the US and other global markets.
The US-China trade row escalated sharply last week after US President Donald Trump vowed to slap a new 10 per cent tariff on US$300 billion of Chinese imports from next month. China then warned that it will retaliate if the US imposed these tariffs.
In Asia, Taiwan, South Korea and Singapore are the most exposed to the Chinese market, with 41 per cent, 31 per cent and about 25 per cent of their respective total exports bound for mainland China and Hong Kong in 2018, Fitch Solutions said on Tuesday. The majority of their exports comprised electronics and machinery.
The Business Times (BT) reported in May that Singapore firms had seen new orders dive, with some bracing for a decline in revenue this year. The firms told BT they had put expansion plans on hold as they tried to find new markets to diversify their customer and supplier base, as well as move up the value stream to create more price-inelastic products.
On Tuesday, Fitch Solutions suggested that certain South-east Asian nations including Vietnam, Thailand and Malaysia may be able to offset falling Chinese demand by hosting multinational corporations (MNCs) looking to relocate or expand production away from China.
“MNCs will likely find such locations viable and even attractive due to existing electronics and manufacturing footprints, which lowers the marginal capex (capital expenditure) investment to rejig supply chains,” the firm said.
However, the relocating process is not straightforward, and these South-east Asian nations may, in turn, also be subject to US trade restrictions. This means that investment will be “very difficult” to justify until there is greater clarity over global trade policy, Fitch Solutions pointed out.
Supply chain reshuffling is also a complex process that will likely take several years and be fraught with considerable challenges in practice, it added.
Furthermore, a slowing Chinese economy is also weighing on other exporting markets which rely heavily on China as the main buyer of their raw materials and durable goods such as cars.
In particular, commodities exporters such as Chile, Congo, Angola, Brazil and Australia, as well as major car exporters Germany and Japan will suffer from the weaker Chinese demand, Fitch Solutions said.
The research firm on Tuesday reiterated its view that global trade tensions will remain elevated for the rest of this year, sustaining downside pressures on many economies.
“Despite the resumption of negotiations between (the US and China) following the G-20 Summit in June, we maintain our view that a comprehensive trade deal between both sides remains elusive in the foreseeable future due to fundamental differences and key red lines between the two countries,” it said.
Moreover, there is a growing risk that China may further delay a deal in the hopes of securing better terms as the US election nears, it added.
Over the past year, Chinese authorities have taken targeted steps to loosen monetary policy and cut taxes, to alleviate pressures from its deleveraging of the shadow financing sector and also cushion slowing growth from the trade tensions with the US.
But Fitch Solutions still expects China’s economic growth to slow to 6.3 per cent this year, from 6.7 per cent last year.
“Trade tensions have exacerbated China’s structural slowdown, and there are increasing signs that stimulus measures undertaken so far have had limited impact,” the firm said.
It also believes Beijing will soon implement demand-side stimulus to increase disposable incomes, as announced during the National People’s Congress in March.
“Much will hang on the ability for demand-side stimulus in China to revive economic activity and help to stabilise falling demand for raw materials,” Fitch Solutions said.
Fitch Solutions Macro Research and Fitch Ratings are separate and distinct divisions of Fitch Group. Fitch Solutions’ commentary is not a comment on Fitch Ratings’ credit ratings, and the two divisions do not share data or information with each other.