A potential trade war between the two largest economies of the world – US and China, could very easily alter the course of economies of smaller countries that are reliant on trade even though the actions of a trade war would not be directly aimed at them.
“The effects of a full-scale U.S.-China commercial slugfest would be global,” says Scott Kennedy, deputy director of the Freeman Chair in China Studies with the think tank Center for Strategic & International Studies. “Companies the world over are embedded in supply chains that run through China.”
The four economies that are likely to be severely impacted by a trade war between the US and China are as follows:
There can be generation of excess product capacity and inventories because of a trade war in both the US and China. According to Stuart Orr, professor of strategic management at Deakin University in Australia, in such a situation, producers of both the countries might look for a country to ‘dump’ the products. One such product is soy beans. Orr says that those countries that produce soybeans would be facing sudden competition, if the US decides to flood the world market with the product. the country that is most likely to be affected by such a move would be Brazil which is the second largest exporter of the product. China is the fourth largest exporter of the product.
Historically, exporting crude and palm oil had formed the backbone of the economy of this Southeast Asian country. Now however, it also is engaged in exporting electronics, machinery and machine parts to countries in Asia including China as w2lell as in the US. According to data compiled by Moody’s, electronics circuits and parts was the top export item of Malaysia to both China and the US last year. But according to Joy Rankothge, a senior Moody’s analyst in credit strategy and research, Sino-U.S. trade restrictions poses a risk to those goods. It is expected that either reduction of orders or price cuts would be demanded by Chinese or American firms.
According to news reports, if Sino-U.S. tariffs are become a reality, there would be a fall of $4 billion per year in the value of Korean semiconductors shipped to China. the value was based on estimates issued by the Korean research organization Institute for International Trade. The reports say that similar hits can be faced by memory chip makers Samsung Electronics and SK Hynix. “If protectionist measures were to significantly and durably weigh on global trade…trade-reliant economies like Taiwan, Korea or Malaysia would be affected,” says Marie Diron, managing director of the Sovereign Risk Group at Moody’s.
Firms in Taiwan either export tech hardware to China to be assembled there or assemble them in Taiwan itself for re-exporting. In a tariff regimen, companies such as solid state drive manufacturer Lite-On and tech giant Foxconn would have to shell out more for exporting its products into the US from their production units in China or by assembling firms in China, said Sagitta Pan, senior industry analyst with the Market Intelligence & Consulting Institute in Taipei. But the Taiwanese companies have the option of either shifting their production units back into China or to a third country to avoid the tariffs.
(Adapted from Forbes.com)