Trade war lands Asian exports in worst condition since the global financial crisis

Date: Monday, December 23, 2019
Source: South China Morning Post

  • UN report shows that Asian exports declined this year for the first time in a decade, sparked largely by the knock on effect of US-China tariffs
  • China’s annual exports fell by 1.4 per cent in value terms this year, Hong Kong’s by 4.8 per cent and Singapore’s by 14.9 per cent

The year of pig brought the worst 12 months for Asia-Pacific trade since the global financial crisis 10 years ago, with the United Nations laying much of the blame on the US-China trade war.

In 2019, for the first time in over a decade, Asia-Pacific economies will see declining trade in goods and services by both volume and value, according to the Bangkok-based UN Economic and Social Commission for Asia and the Pacific (ESCAP).

By volume, total exports could drop by 2.5 per cent and imports dip by 3.5 per cent. Under the pressure of lower prices, values of exports and imports could fall by 3.6 per cent and 4.8 per cent respectively, ESCAP estimated.

ESCAP estimated that China’s annual exports fell by 1.4 per cent in value terms this year, Hong Kong’s by 4.8 per cent and Singapore’s exports by 14.9 per cent. All three economies are highly-connected, but the biggest drop off came in Iran, faced by heavy trade sanctions, which suffered a 32.4 per cent drop in exports and a 19.7 per cent import slump this year.

Developed countries in the region are experiencing worse trade woes than developing ones. Developing Vietnam, for example, has taken advantage of US tariffs on China, by becoming an alternative supplier of goods to the US market. As a result, ESCAP said its exports will grow 4.4 per cent this year and 5.8 per cent next year, in value terms.
Export values from four developed economies in the region, including Australia, Japan, New Zealand and South Korea, on the other hand, are estimated to decline by 6.9 per cent this year, compared to a more modest 2.6 per cent decline across developing nations.

“Looking ahead, a modest 1.5 per cent and 1.4 per cent expansion of exports and imports respectively in 2020 is on the horizon; however, this is dependent on whether the US-China interim agreement can reduce some policy uncertainty,” read the ESCAP report.

“Even if the US and China have reached an interim trade agreement, risks remain that other restrictive measures could be implemented. Conflicts related to intellectual property, transparency and market interventions still persist. Moreover, potential new restrictions may also include specific global value chain-related sectors, such as the automotive sector,” it read.

The US and China announced a phase one agreement just before a December 15 deadline that would have seen a new 15 per cent tariff on around US$160 billion of Chinese goods. China in turn cancelled retaliatory tariffs. However, 
tariffs remain
 on hundreds of billions of dollars worth of goods from both sides.

Analysts, however, are looking to one modest green shoot of recovery for the region next year: the rebounding electronics industry, the bedrock of Asian exports.

In 2019, a combination of the trade war and oversupply drove sales of semiconductors, a key component in many hi-tech products, down by 13.3 per cent, according to the World Semiconductor Trade Statistics, an industry body.

About 60 per cent of all semiconductors are made in Asia-Pacific. But the group said the industry could see a turnaround in 2020, and is forecasting growth of 4.8 per cent in trade in 2020 amid broad deployment of 5G technology and new energy vehicles, which could drive demand and price.

US semiconductor equipment sales – a key indicator of global sales of the chips – grew by 3.9 per cent in October on a year earlier, the latest available figure. This was the first positive reading in over a year and led analysts from Japanese bank Nomura to project positive semiconductor sales in the first quarter of 2020.

The analysts also revised upwards their outlook for Asian economies’ exports next year (the forecast does not include Japan).

Despite this, countries within the region face wildly varying exporting fortunes next year, ESCAP said, from 5.8 per cent growth in Vietnam to minus 8.8 per cent in Iran.

Mia Mikic, director of trade, investment and innovation at ESCAP, said the trade war may damage supply chain efficiency if it persists. “Companies serving final demand in China and developed markets will be forced to duplicate investment in more than one jurisdiction due to decoupling. This will lead to higher costs and lower investment returns in global value chain operations,” she said.
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