With swords brandished and no intent to back down or sign a nullifying treaty, both China and North America are duelling on a battleground where no holds are barred and scars are documented as the world watches, awaiting the next hit. Duelling with tariffs, they’re slinging calculated attacks across the battlefield.
5 reasons why the US-China trade war might benefit Southeast Asia
Due to these disconcerting economic and trade relations, more countries have been drawn into the battle, and all are on the precipice of possible risk as global foundations shift. Tariffs are taking a toll on both opponents’ economies, yet neither will give in. The decisions being made are fuelling a feud that could impact the entire world. Trump believes that despite the warning from Larry Kudlow, the U.S.A.’s chief economic advisor, the U.S. has got the longer end of the stick and could out-match Jinping and the Chinese economy.
With economies predominantly powered by export and imports, both the U.S. and China have plans to change their reliance on each other. In recent years, China has shown an interest in Asian countries and trade exchanges, and the incentive to cultivate these connections will increase as Trump continues the tariff tempest.
In order to avoid U.S. tariffs and the widened economic playing field inclusive of ASEAN countries (namely Indonesia, Malaysia, Philippines, Singapore, and Thailand), China’s efforts are now aimed at increasing foreign investments, generating alliances, and developing new locations for manufacturing. While this could turn out to be a beneficial move, Malaysia, Singapore, and Thailand are all wary of retaliation from the U.S., fearing their position may put them in Trump’s ‘line of fire’.
The divide between China, the U.S., and potentially other ASEAN countries will inevitably impact the availability and price-margin of goods around the world. China has plans to further their engagement with other Southeast Asian countries which have been in process for a few years. It is no surprise that the U.S’s loaded gun of retaliation is the incentive to speed up the security of these deals.
The impact of the duelling is building uncertainty in the region, endangering business confidence and inciting doubt about economic conviction.
Singapore will undoubtedly experience its own challenges due to the US-China divide. Just as other ASEAN countries are exposed to lowering gross domestic product (GDP), Singapore’s modest economy may not handle the fallout well, either. In the first quarter of this year, Singapore’s growth slowed to a low of 1.2%, the lowest in almost a decade and lower than the economists’ prediction of 1.5%. Singapore’s Ministry of Trade and Industry (MTI) is taking a cautionary position stating that they expect a further decline in the manufacturing sector where the industry took a hit of 7.1%.
But it isn’t all bad news for Singapore. The Lion City’s communication, finance, and business sectors prove to be on a promising plateau of 1.5% growth and the country’s construction division displayed growth for the first time in a decade. However, as a trade-dependent country, the forecast doesn’t bode well for Singapore’s economy. If they’re able to recover from the trade-war attacks and forge new paths forward, it’s possible the lion will return with a roar.
Brunt or benefit
Whether Southeast Asia will bear the brunt or benefits of the US-China trade war will be determined by further tariffs, retaliation measures, and alliances. There is room for inter-country economic growth, driven by innovation, quality, and strengths. With a combined total of 650 million people across ASEAN countries, domestic-based companies are likely to be seen competing in their local arenas. The changes will give rise to a wealthier economic foundation, wages will increase, and consequently, the cost of living will escalate as well.
From the beginning of 2019 until May 20, the growth spurt of China’s foreign direct investments (FDI) in Vietnam has seen a 5.6% increase, now sitting at $1.56 billion USD. They’re currently in the lead with South Korea close behind at an approved $1 billion USD and Japan at $730 billion USD. Thailand appears to have opened its gates with cash-ins from Chinese investments doubling to $933 billion USD.
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As manufacturing is a popular form of income for Southeast Asian countries, and with the increased interest for FDI during this US-China trade war, ASEAN countries need to prioritise equipment quality. In a 2018 white paper by A.T. Kearney it shows that, of the manufacturing ASEAN companies, less than 15% possess the advanced equipment necessary to stay competitive and profit midst this economic change, lending itself to the current push for inter-ASEAN communication and knowledge exchange.
ASEAN countries will also need to improve their tech skills and infrastructure to take advantage of their intrinsic strengths. These actions will lead the countries to further their global status as leaders in the manufacturing and tech industries. According to the same study from A.T. Kearney, ASEAN countries will benefit from the strength and resilience that collaboration inspires. Through combined forces, they can ready themselves for the coming production changes and economic growth.
As China and the U.S. feature strongly on the map of trade exports in Southeast Asia, it is not looking promising for dependent countries in the near future, as they will undoubtedly bear the brunt of this debacle. However, it is possible that as a result of increases in tech, finance, and manufacturing systems, these ASEAN countries may become booming beneficiaries in the long term rather than minor players.