Bracing ourselves for a China-US trade war

[webfact]

Bracing ourselves for a China-US trade war

By Suwatchai Songwanich 
Chief executive Officer, 
Bangkok Bank (China)

 

 

The on and off threat of a trade war between the US and China continues to rock markets as both countries have threatened hefty tariffs on one another, starting this month.
 

The US is due to impose 25-per-cent tariffs on US$34 billion (Bt1.12 trillion) of Chinese imports from July 6, while China is due to reciprocate at the same level on the same date. And this is just the start – if no agreement is reached more tariffs will come further down the track.

 

In an attempt to avoid a full-scale trade war, China is trying to enlist the support of leading US companies. On June 21, Chinese Premier Xi Jinping met with the heads of the Global CEO Council in Beijing and urged them to fight against “protectionism, isolationism and populism”.

 

US attitudes are hardening, however. Last month, the White House Office of Trade and Manufacturing Policy issued a strongly worded paper accusing China of economic aggression that not only threatened the US economy but also the “global innovation system of the world”.

 

Both China and the US have strong hands to play and perhaps each thinks that the other will back down. China assumes that many US companies depend on the Chinese market for sales and their manufacturing operations in China would suffer from punitive tariffs.

 

However, a research note by Societe Generale indicated that China would be the biggest loser if all threats were implemented. It calculated that Chinese GDP could fall by one per cent whereas the effect on US real GDP would be a “far more modest” 0.1 per cent to 0.2 per cent.

 

If the trade war does escalate there will be many negative consequences for the global economy, and this has been disturbing global markets. Thailand has additional concerns as China is our biggest export partner and many of the goods we produce are part of China’s supply chain.

 

Thailand’s Commerce Ministry says that Thai shipments of washing machines and solar cells have already fallen due to new US tariffs imposed earlier this year, while aluminium and steel sales will also be hurt. On the other hand, the Thai Development Research Institute says that while Thai exporters may suffer in the short term, the impact will be limited and there will be benefits longer term as investment may relocate to Thailand from China.

 

China has indicated that it is willing to make some concessions by cutting some tariffs and the People’s Bank of China will boost liquidity by easing capital reserve rules. If a deal can be reached with even bigger tariff cuts that stimulate trade, in the end there could be winners all round.

 

Source: http://www.nationmultimedia.com/detail/opinion/30349060

 

-- © Copyright The Nation 2018-07-02

[Get Real]

Here we can clearly see how much theese big countries really want to help the rest of the world. They simply do not care who they hurt.

[Cats4ever]

Let us hope that calm and wise heads prevail. Smoot Hawley Act extended and worsened the Great Depression. I am not confident about this settling down when you consider that North America, Europe and China are all involved.

[JTXR]

Good article in this week's Economist on the potential effect of a possible US-China trade war on SE Asian countries, given their role as key producers in global supply chains.

https://www.economist.com/asia/2018/06/30/asia-is-at-last-waking-up-to-the-threat-of-a-trade-war

[mikebell]

How will this affect the baht v UKP rate?

[Johnnyngai]

While the big boys argue,  buy emerging market currencies on the cheap.

[CGW]

7 hours ago, webfact said:

On the other hand, the Thai Development Research Institute says that while Thai exporters may suffer in the short term, the impact will be limited and there will be benefits longer term as investment may relocate to Thailand from China.

Usual Thai unrealistic optimism! do they not think that they would then have tariffs applied or maybe - that nobody would actually notice?  

[DrTuner]

Enlist US companies help? Such as Google and Facebook, eh?

[KiwiKiwi]

5 hours ago, mikebell said:

How will this affect the baht v UKP rate?

 

Given the current state of the Brexit negotiations and the May government, I am deeply concerned about the UKP/THB exchange rate.

 

FWIW.

[Hummin]

8 minutes ago, KiwiKiwi said:

 

Given the current state of the Brexit negotiations and the May government, I am deeply concerned about the UKP/THB exchange rate.

 

FWIW.

Trump going to war on EU to! 

https://www.independent.co.uk/news/world/americas/us-politics/trump-trade-war-tariffs-latest-eu-china-cars-germany-scotland-a8425721.html

 

[KiwiKiwi]

2 minutes ago, Hummin said:

Trump going to war on EU to! 

https://www.independent.co.uk/news/world/americas/us-politics/trump-trade-war-tariffs-latest-eu-china-cars-germany-scotland-a8425721.html

 

 

Yep, that as well, the fact that Trump goes to war with everyone isn't directly relevant but is indirectly relevant. He's going to unplug USA from the world. About time too, perhaps they'll have to invade Finland next, as Michael Moore theorised. Running out of places to 'improve'.

[KiwiKiwi]

47 minutes ago, DrTuner said:

Enlist US companies help? Such as Google and Facebook, eh?

 

Not sure that would help. I think they already know how to evade tax and misuse data.

[zydeco]

Aligning itself so closely with Communist China may well cost Thailand dearly. They will be on the indirect end of the tariffs applied to the Chinese. Add to that the fact that Thailand already has a direct trade surplus with the US and, if Trump ever takes notice of it and applies sanctions to those, that will be a double whammy. 

[IAMHERE]

Let's see how China handles 15% unemployment.

[KiwiKiwi]

9 minutes ago, IAMHERE said:

Let's see how China handles 15% unemployment.

Well, that may be a consequence, however, if I had to choose between Trumps USA and a China/Russia nexus, I would be happy to say good riddance for the USA military/industrial power base, because go down it will.

 

The world does not need the USA to keep imposing it's military, economic and underhand manipulative will.

[Hummin]

13 minutes ago, IAMHERE said:

Let's see how China handles 15% unemployment.

We had these trade wars before, and useally leading up to something bigger we really do not want or need. Hopefully not in my time, but for your kids and their family for sure it will happen. 

[tpazzi]

2 hours ago, zydeco said:

Aligning itself so closely with Communist China may well cost Thailand dearly. They will be on the indirect end of the tariffs applied to the Chinese. Add to that the fact that Thailand already has a direct trade surplus with the US and, if Trump ever takes notice of it and applies sanctions to those, that will be a double whammy. 

Thailand's exports by country:

China(12 percent), Japan (10 percent), the United States (10 percent) and the European Union (9.5 percent).

"closely aligned" isn't exactly the adjective I'd use to describe their relationship with any of the major economies. 

(source:  https://tradingeconomics.com/thailand/exports )

[ExpatOilWorker]

43 minutes ago, IAMHERE said:

Let's see how China handles 15% unemployment.

Unemployment in China could very well be the end result, but China will fall in stages:

 

1. Chinese stocks fall. 20% drop already and since 85% of stocks in China are own by individual investors it is instant felt throughout the economy.

2. Real-estate is just another asset class in China, but at $46 trillion it is much bigger than equity and construction support 20% of the economy. A fall here could seriously impact China's economy.

3. The government want consumer spendings to support the economy, but with stocks and real-estate falling, that will never happen. End result could be unemployment.

 

 

[DrTuner]

1 hour ago, IAMHERE said:

Let's see how China handles 15% unemployment.

Given China's history, probably no ploplem, let them starve.

[Rimmer]

A troll/flame and reply have been removed

[tpazzi]

51 minutes ago, IAMHERE said:

Let's see how China handles 15% unemployment.

I suspect they could handle it a heck of a lot better than the US could.  For starters, the political leadership in China doesn't have to worry about the impact of economic statistics on the next election, which is never more than 23 months away in the US.   (Ask Jimmy Carter how that works in the US.)

As an American working in China, I can tell you they aren't socially divided along political philosophy the way the US is.  It would be a huge mistake to underestimate the willingness of the Chinese general population to suffer in the short term for the good of their nation if asked.  Beijing is putting a lot of energy into presenting the message, true or not true,  to the population that their hand is being forced by Trump who is acting unreasonably, again, true or not true.  Keep in mind, they don't have the headache of having to broadcast their message thru a free press.

Contrast that with the US where Trump, who is already starting with an majority unfavorable rating, doesn't seem to be implementing a single policy that will expand his base of support and antagonizes the media over ever single unfavorable news story.  He will have to face a re-election in 28 months when any economic slowdown triggered by tariffs is likely to be peaking.  (I realize the thinking is that as the country with the trade deficit, the US would feel the effects as severely.  But make no mistake, there will be an impact which the alienated press will report with enthusiasm.)    True, the loyal 38% won't likely desert him, but his narrow margin of victory in Pennsylvania, Wisconsin, and Michigan will be at serious risk of flipping if any economic slowdown affects those 3 states.     

Then again, he might find a situational compromise that he can parade around in his quest to win every news cycle. And who knows, it might have enough legs that it keeps his Electoral College advantage in tact.  But if there is a grand strategy being acted out here then I, for one,  am missing it. 

[tpazzi]

1 hour ago, ExpatOilWorker said:

Unemployment in China could very well be the end result, but China will fall in stages:

 

1. Chinese stocks fall. 20% drop already and since 85% of stocks in China are own by individual investors it is instant felt throughout the economy.

2. Real-estate is just another asset class in China, but at $46 trillion it is much bigger than equity and construction support 20% of the economy. A fall here could seriously impact China's economy.

3. The government want consumer spendings to support the economy, but with stocks and real-estate falling, that will never happen. End result could be unemployment.

 

 

Don't think Beijing would sit on the sidelines.  They'd attempt to stabilize the economy by increasing spending on government funded projects and hide the debt increase (which they are already pretty good at).   
 

[ExpatOilWorker]

23 minutes ago, tpazzi said:

Don't think Beijing would sit on the sidelines.  They'd attempt to stabilize the economy by increasing spending on government funded projects and hide the debt increase (which they are already pretty good at).   
 

Beijing have a lot of political power in China, but once financial gravity sets in, they don't have a lot of fire power left.

The for biggest banks in the world are Chinese, with total assets of $13 trillion. They have been underwriting a lot of SOEs and public spendings, but how much more can they take? 

 

A 20% drop in real-estate prices will result in a loss of $9 trillion on par with what was lost during the American subprime crises in 2008. 

 

Sure, the Chinese will live through the next financial crises, but the easy days of the last 30 years export driven high growth are certainly numbered.

 

[Enoon]

10 hours ago, IAMHERE said:

Let's see how China handles 15% unemployment.

 

With massive infrastructure projects to nullify it.......same as they have been doing for 2000 years.

 

Let's see how US consumers handle having to pay "top dollar" for all the cheap material goodies they have become addicted to.

 

It will be delicious to watch the mob turn on Trump and tear him to pieces.

 

 

 

Edited July 2, 2018 by Enoon

[ExpatOilWorker]

7 hours ago, Enoon said:

 

With massive infrastructure projects to nullify it.......same as they have been doing for 2000 years.

 

Let's see how US consumers handle having to pay "top dollar" for all the cheap material goodies they have become addicted to.

 

It will be delicious to watch the mob turn on Trump and tear him to pieces.

 

 

 

Borrow more to build more??

 

 

[Eric Loh]

Not only export will be affected if the China-US trade war escalate into a global calamity. Investments will be affected as investors will adopt a wait and see and will have no appetite for risks. That will be bad for Thailand who invested heavily on EEC hoping to attract companies to set up shops which will not happen. Big loans for the EEC project will have to be serviced. The EEC project may be the albatross hanging around Thailand neck for a long time.