Singapore, Malaysia could be most exposed to US-China trade war: OCBC

With the United States and China launching one set of tariffs on each other's goods on July 6, analysts are wary of downside risks to global growth.

But the impact on Asean economies will likely be uneven, say OCBC Bank economists. Singapore and Malaysia could be the most exposed in the region, while Indonesia, Philippines and Vietnam might feel less of a hit.

ASEAN BUSINESS takes you through OCBC's analysis.

Chinks in Asia's armour

A mild trade war - defined as US$50 billion worth of US tariffs on Chinese imports - would have “fairly negligible” impact on economic growth for 2018.

Should tensions escalate, though, a more severe trade scenario involving US$250 billion of customs duties could hurt key Asian markets' gross domestic product growth forecasts by 0.1 to 0.5 percentage points, the OCBC economists say.

The most vulnerable economies were identified as those most exposed to trade with the US and China and/or those with dominant manufacturing sectors connected to transnational value chains.

The OCBC team fingered Singapore and Malaysia as potentially the most exposed South-east Asian economies, while Indonesia, Philippines and Vietnam could be relatively more sheltered.

Impact on Singapore

Given its dependence on manufacturing and trade, the Singapore economy would likely suffer if trade flows decline.

Industries that would be affected include:

• Maritime and shipping. If China shifts production offshore, Singapore's transport and logistics hub could benefit from higher maritime and shipping activity.
• Electronics. Certain products directly hit by US tariffs - solar cells and modules, washing machines, and steel and aluminium - account for a relatively modest 0.1 per cent of exports. But companies that make intermediate goods for Chinese exports could face softer demand.
• Finance. Increased market volatility may drive capital to safe havens like Singapore, but the Republic is also not immune to the jittery fund out-flows that have taken place in Asia and emerging markets.

Impact on Malaysia

Based on Malaysia's trade openness, tit-for-tat tariffs are expected to hike the costs of raw materials and intermediate goods.

Industries that would be affected include:

• Palm oil. Prices and exports could be lifted if palm oil becomes a substitute for soya beans, which have been a target of tariffs.
• Chemicals. Malaysia is seen as a competitive alternative to China when it comes to supplying the US with chemical products.
• Solar panels. With 25 per cent of US solar panel imports hailing from Malaysia, levies on solar panels are sure to land a blow.
• Electronics. Electrical and electronic products are top exports for Malaysia, and China is a leading trade partner.

Impact on Indonesia

Indonesia trades heavily with China, and, while it is a commodity giant, more than one-quarter of Indonesia's exports to the Middle Kingdom involve intermediate goods.

Industries that would be affected include:

• Commodities. Coal, rubber and palm oil are key Indonesian exports. Palm oil prices and exports may benefit if it becomes a substitute for soya beans.
• Steel, aluminium and iron. If the US slaps metal products with import duties, China could dump its own domestic excess elsewhere - which might put a crimp on the Indonesian metals industry.

Impact on Vietnam

Vietnam is relatively quite dependent on nearby China for trade, and is also exposed to the US.

While a recalibration of trade flows might benefit Vietnam, there is also concern that Chinese companies could turn Vietnam into a dumping ground for exports, which could disrupt Vietnam's local industries and manufactured good prices.

Industries that would be affected include:

• Consumer goods. China could look to Vietnam's labour-intensive consumer goods industry in a bid to raise market access, diversify risks and slash manpower costs.
• Machine parts and components. Vietnam deals in intermediate goods that are partially assembled in China and then shipped to US customers.

Impact on the Philippines

As most of the Philippines' growth stems from domestic consumption, it is more likely able to shrug off its high trade exposure to the US and China, compared with the rest of Asean.

Industries that would be affected include:

• Pork. The Philippines could possibly boost exports to the US, taking advantage of the tariffs on Chinese pork.
• Electronics. Both the US and China are major export destinations and import sources for the Philippines.

Impact on Thailand

Thailand mainly exports primary products, which shields it somewhat from trade tensions, but its trade surplus with the US could put it in the crosshairs of more aggressive trade protectionism from the White House.

Industries that would be affected include:

• Fruits. With China slapping tariffs on US agricultural products, Thai fruits would be relatively cheaper than American produce and its exports should benefit.
• Automotives. Thailand is Asean's biggest automotive player. It could become a more attractive manufacturing venue for global automakers, including Harley-Davidson, thanks to US tariffs on European vehicles.

Impact on Myanmar

Myanmar trades heavily with China, and could get a boost from increased Chinese attention.

Industries that would be affected include:

• Cattle. China and Myanmar are working on a deal to meet growing Chinese demand for beef with Myanmar exports. Chinese tariffs on US agricultural products should provide Myanmar with another opportunity on the trade front.
• Manufacturing. Chinese companies are increasingly keen on setting up factories in Myanmar, including in the Thilawa Special Economic Zone.

Impact on Cambodia

Direct impact of the ongoing trade tensions should be relatively insignificant, even though the US is a top export partner, since Cambodia mainly sells clothes and textile goods.

Impact on Brunei

With Japan its leading export destination, Brunei has minimal export exposure to both Washington and Beijing. Just 0.4 per cent of its exports go to the US, and only 2.2 per cent to China, leaving the kingdom generally well insulated from US-China trade tensions.

Impact on Laos

While Laos trades heavily with China, the US is a much smaller market, making up just 1.8 per cent of Lao exports against China's 28.6 per cent share. As such, the impact of trade tensions on Laos remains minimal.

Industries that would be affected include:

• Electronics. Machinery, transport equipment and manufactured goods make up most of Laos' exports to the US - and these industries could potentially gain some lustre as the US whacks Chinese electronics with tariffs.