Page 58 - FoodFocusThailand No.163 October 2019

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foreign investment have also been improved. U.S.’ withdrawal from the Trans-Pacific Partnership (TPP) has unexpectedly
2. The U.S. deficit balance of trade may be abated through, for turned China into the regional leader through the RCEP, thus moderately
example, the request for China’s collaboration to import more American attenuating the impacts of the trade war.
goods such as soybean. China is expected to oblige to a certain extent. 2. The Chinese supply chain is to be integrated with those of Asian,
3. The U.S.’ request for China to downscale its progress toward European, and African countries through the One Belt One Road project. The
becoming the world’s leader in technology within 2025 (China’s 5G Free Trade Agreements (FTA) will also be made within different frameworks,
technology, for example, is almost surpassing that of the U.S.) may including the RCEP.
be declined as such demand is regarded as an attempt to maneuver
Chinese sovereignty. China’s unerring determination to reach such Thailand’s Strategies for Adjustment
goal within 2025 is thus the main point here and will make it difficult 1. “Commerce” Establishes War Room
for China to oblige. The initial plan is to prepare Thailand for highly volatile situations in this
trade war. In the conference of Joint Public and Private Sector Consultative
Mutual Attacks to Augment Negotiation Power Committee, the Ministry of Commerce, on August 18, 2019, the Trade Policy
1. The tariff wall sparkled the first wave of attacks. The U.S. and Strategy Office (TPSO) proposed 4 strategies to deal with the situation
made the first move by raising product taxes. It levied higher tariffs as follows:
for China-imported iron and aluminium, which were then followed by 1) The preparations for trade diversion such as the surveillance of
an increase in custom duty by 25% on Chinese products valued at subrogation and the handling of the influx of the redirected foreign products that
USD 550 billion, which accounted for almost all the commodities that cannot get through China or the U.S., including iron, aluminium, and soybean.
China exported to the U.S. The retaliation of the Chinese government 2) The management of export markets such as the search for substitute
involved an increase in tariffs on American merchandise by 10-15% markets in the RCEP and FTAs in which Thailand is a member.
(Source: The Standard). 3) The push for trade and investment negotiations such as the attempt
2. China reacted by placing non-tariff barriers on hi-tech goods. to reach the final agreement of the RCEP negotiation within this year.
It may, for example, refuse to sell rare earth minerals (used as raw 4) Investment-wise, the integration of the local supply chain to the global
materials in hi-tech industries) to the U.S. In addition, the American supply chain.
government has announced a ban on Huawei’s products for allegedly The committee agreed to the set up of a war room, which is presided by
imperilling its national security and has prohibited any American the Permanent Secretary of the Ministry of Commerce with the Director of the
enterprises from engaging in commercial activities with this Chinese Trade Policy and Strategy Office acting as the secretary, in order to closely
tech giant. monitor the situation.
3. The conflicts escalated into a financial war. The People’s Bank of 2. Windfall for Thailand
China (PBOC) has announced a reduction in Chinese Yuan conversion 2.1 There is an increasing trend of manufacturing base transfers due to the
rate, thus landing its currency at an 11-year low. The U.S. claimed that trade-war negotiations, which so far have shown no sign of ending. Multiple
the attempt was intentionally made by China in order to minimize the manufacturers are planning to transfer their bases from China to other locations,
impacts from the U.S.-imposed tariff barrier. China has consequently with ASEAN countries eyed as the first alternative. According to ATKearney’s
been listed as a currency manipulator. assessment in July 2019, it was revealed that American entrepreneurs would
4. The trade war is less likely to end, especially when the tension rather transfer their plants to other countries that offer lower costs than move
has spiraled up. China has recently announced a tariff increase on back to the U.S. This conclusion corresponds with the result of the China-
U.S.-imported goods by 5-10%, totalling at USD 75 billion, to be based American Chamber of Commerce’s poll that surveyed in September
effective on September 1 and December 15, 2019. It also upped 2018 the opinions of the American corporates in China, which have shown
the taxes on U.S.-imported cars to 25% and auto parts to 5%. In a particular interest in moving their bases to ASEAN (Source: TPSO). Thailand
retaliatory response, on August 23, 2019, the U.S. president Donald and Vietnam rank amongst the first prospects that the two following industries
Trump announced a further increment in taxes by 5% on the Chinese are laying their eyes on:
products in the groups that are valued at USD 300 billion and USD 250 2.1.1 Car/Machine industries: their manufacturing bases are expected to
billion. American corporates have also been requested to withdraw spread further into the region as a solution to the import tax issues and trade
from China while American shipping companies have been ordered war effects. Thailand has the highest potential, especially for the car industry,
to refuse the delivery of Fentanyl from China to the U.S. in ASEAN when it comes to its capabilities to satisfy all the needs concerning
production base transfer. Mr.Matthew Levatich, the CEO of Harley-Davidson,
If the Negotiations Fail…Is China Ready? has recently announced that the company would move its production base
1. China’s exports to the U.S. account for 19% of its total exports for the Chinese and Asian-Pacific markets to Thailand within 2019 in order to
(Source: GTA). If China is to lose the American market, it needs to avoid the tariff wall problems. Japanese enterprises such as Mitsubishi Motors
look for alternative markets as a replacement. This leads to 2 following and Toshiba Machine in China are also planning to follow suit as well.
possibilities: 2.1.2 Electronics/Computer/Electrical Appliances industries: more leading
1) China may turn to its domestic market with over 1.4 billion companies in China are considering transferring their manufacturing bases
consumers. The Chinese middle class now has more purchasing from China to ASEAN. The corporates that are considering Thailand as their
power than before. Additionally, the country’s policy in becoming the potential new base are Ricoh, Sharp, and Panasonic.
world’s leader in technology within 2025 will spur more government- 2.2 Thai goods have the potential to replace American commodities such
subsidized investments. as frozen and processed fish, milk and cream products, chemical products,
2) China may gravitate more toward the regional markets such machinery and parts, electrical appliances, and car-related products.
as ASEAN and India through the Regional Comprehensive Economic 3. Booming RCEP
Partnership (RCEP) which is expected to reach a conclusive agreement China is likely to push forward for the RCEP negotiations so that the
within 2019 (The RCEP consists of 10 ASEAN member countries conclusion can be reached within this year as it needs to reduce the impacts
and 6 partner countries including China, Japan, South Korea, India, of the ongoing trade war. Such action will positively affects Thailand as it will
Australia, and New Zealand). Since the onset of the trade war, ASEAN help bridging economic behemoths such as China, India, and ASEAN via
has replaced the U.S. as China’s number one trading partner in 2019. logistic networks, supply chains, and Thailand’s EEC project. More importantly,
The RCEP is the world’s biggest trade bloc covering almost half of the the RCEP will act as a safe haven for American, Chinese, and international
world’s economy (39% of the global GDP PPP in USD / Source: World investors during this period of trade-war uncertainty which is likely to continue.
Bank) and accounting for nearly half of the world’s population (48% of The RCEP can boost up investment confidence through its accessibility to
the the world’s population / Source: World Population Reviews). The some of the world’s biggest markets such as China and India.

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