Asean countries benefiting from trade war: Maybank Kim Eng

Most countries in Asean, save for Singapore and Indonesia, are benefiting substantially from the effects of the US-China trade war, with Vietnam and Malaysia coming out on top.

This is according to analysts at Maybank Kim Eng, who also say that the diversion of trade flows towards Asean has largely been driven by both US and China import substitution as a result of the US-China import tariffs.

Analysts identified Vietnam as a key beneficiary from the effects of the tariffs imposed on China by the US. This came as Vietnam's exports of the tariffed items to the US surged by 29 per cent in first four months of 2019.

Other Asean members such as Cambodia, Laos and Myanmar also saw noticeable gains in exports to the US due to the tariffs imposed on China by the US. Electric lamps and lighting fitting, natural rubber and ethylene polymers were among the goods that saw the largest growth in exports.

Malaysia was also cited by analysts as being a winner from the tariffs imposed on the US by China. Chinese imports of liquefied propane from Malaysia grew 624 per cent year-on-year. Meanwhile, Chinese imports from the US for liquefied butane and metal ores & concentrates dropped to zero in first 5 months of 2019.

Indonesia and Thailand also gained as their exports of similar commodities including metals grew.

Additionally, Cambodia, Laos and Myanmar were again quoted as beneficiaries from the tariffs imposed on the US by China.

Analysts wrote that the rechanneling of excess capacity and inventories from China towards Asean may increase deflationary pressures, hurt domestic producers and trigger retaliation. Excess inventory of products meant for exports to US may have been diverted to third countries including Asean, because of the higher US tariffs.

China's exports of steel products to and aluminium products to most Asean countries showed a visible increase since the second quarter of 2018. This coincided with US imposing a 25 per cent tariff on steel imports and 10 per cent tariffs on aluminium imports in March 2018.

As a result, Indonesia, Vietnam and Malaysia have started imposing temporary anti-dumping duties on these products. This followed a five-month investigation by Vietnam which found that the local aluminum sector suffered serious losses due to Chinese dumping.

China's 25 per cent tariffs on US soybeans starting July 2018 have also resulted in a surge of US exports to Asean, with the US Soybean Export Council targetting soybean exports to third countries such as Japan, Mexico, Myanmar, Nigeria, Pakistan, Taiwan and Thailand to fill the gap left by China.

Even as Vietnam has experienced substantial gains as a result of the US-China trade war, it is facing increasing scrutiny from the US for the possible re-routing and tariff circumvention of China exports.

The US Commerce Department recently imposed duties of more than 400 per cent of steel imports from Vietnam due to potential re-routing of steel products originally produced in South Korea and Taiwan. Earlier in March 2018, the US had also hiked tariffs on steel products from Vietnam that originated from China.

The analysts also added that any escalation of the US-China trade war to the remaining items not currently tariffed will likely result in stronger trade diversion shifts to Asean consumer export items.