US-China Trade Tensions could affect Asian Economies

Asian economies such as South Korea, Taiwan, and Southeast Asia could be severely affected if trade tensions between the U.S. and China intensity even further. Gareth Leather, senior Asia economist at Capital Economics noted that these Asian economies are among the largest exporters of intermediate goods to China, which then assembles those pieces into finished products to ship to final destinations such as the U.S. Some examples of intermediate goods are semiconductor chips and screens. These goods are usually manufactured in different places across Asia before they are sent to China for assembly into products such as computers and phones. Both the U.S. and China have traded collective threats to enforce tariffs on each other’s products. This indicates that if the numerous tariffs proposed by U.S. President Donald Trump come into effect and end in a fall in Chinese exports to the U.S., there will be ripple effects for the rest of Asia. A J.P. Morgan analysts states: “By its very nature, such products are highly reliant on tightly integrated supply chains. To that extent, this would propagate any trade shock into the region.”

These threats are coming when developing markets, including those in Asia, have been assaulted by capital expenses and have seen their currencies decline in the process. The Taiwanese dollar decreased by 1.7% to 30.172 per U.S. dollar, while the Korean won decreased 4.2% to $1,110.89 per U.S. dollar. In Southeast Asia, Singapore’s currency decreased 1.5% to 1.3567 per U.S. dollar, while the Thai baht decreased by 0.6% to 32.73 per U.S. dollar. All these currencies hit their lowest levels in seven months, after tensions between the two biggest economies heightened. Gareth Leather states: “U.S. consumers would struggle to find sufficient substitutes to replace the goods that they currently buy from China, at least in the short-term. What’s more, to the agree that our countries can step in, Asian exporters are well-placed to benefit from any shifts in U.S. demand. Until we know exactly which goods are targeted, it will be impossible to calculate the impact on the rest of Asia.”

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