THE Asia-Pacific could benefit from a US-China trade war, though to call Asean a sure winner in supply chain migration may be “tricky”, said an economist at a forum on Monday (Nov 26).
The conflict between the world’s top two economies was the subject of spirited discussion at the 30th Singapore Economic Roundtable, which brought together private economists, academics and policymakers for a three-hour session at the Orchard Hotel.
The discussion took place under the Chatham House Rule, where speakers cannot be identified without their consent. The economist declined to be attributed as a source, when approached.
Singapore, along with Malaysia, South Korea, Taiwan and Vietnam, are supply chain sites in the region that could reap gains from diverted trade, especially “if you assume that they can sell 20 per cent more to the US, let’s say next year”, said the economist.
“It’s not an unreasonable amount, if they’re at full capacity, to sell more,” he added.
The downside risk would be if they fail to sell to the United States by way of China and also cannot find any other customers.
“But we would assume that there should be a decent amount of diverted demand if the US is not buying from elsewhere. It still has a relatively decent pace of growth itself. Consumption is relatively strong,” the economist said.
“If they’re buying from elsewhere, it is going to be from the next competitors, and they are, as I mentioned, Vietnam, Malaysia, Mexico, Taiwan, South Korea - mostly in this region.
“So, if you adjust back to assume that there is some amount of diverted demand that goes to others, even the supply chain losers could sell to those alternative providers too.”
He also believes that, in the long run, there will be more country risk and natural disaster risk factored into future foreign direct investment (FDI) decisions on China, even if the US reaches “the greatest deal ever made” on bilateral trade with China.
“And that just accelerates the process of what’s already been going on for at least the last five-plus years - of more FDI going, on and off, into Asean, rather than into China.”
But, on the risk of supply chains moving out of the region, the economist picked Samsung as “the best example of a single entity that can transform an entire economy” and cited its large share of Vietnamese exports.
One positive scenario that his team anticipates in the next few years, he said, is the acceleration of this ongoing process: a shift in at least the lower end of activity into cost-effective markets.
Entities as large as Samsung “bring everyone else with them”, the economist added.
“You need all the right things in place, including motivation from policymakers on bringing it in, and certainly Vietnam had that at the starting point, when all that was happening.
“So it can shift, but we would argue it’s only going to be what’s already going on that might pick up a bit of speed. But that would depend on many other factors, too . . . That confidence element will play a major role in how much more quickly or not it ends up happening.”
Still, the economist noted that the pick-up in a supply chain shift could be moderate, as major companies take a wait-and-see approach as the winds of change blow. “That Asean’s a major winner is a tricky one,” he noted.
“Certainly, it’s hard to see in the future selling more lower-value added consumer goods to China. Most likely, that productive capacity that was for the domestic market stays there, rather than suddenly becoming any major thing that you can sell there.”