The escalating global trade war has been a recurring anxiety on the minds of many since US President Donald Trump vowed to "Make America Great Again" by imposing hefty import tariffs in an attempt to level the playing field and help US manufacturers.
Mr Trump's gambit is also viewed as a radical attempt to reduce the massive US trade deficit with China, which stood at US$375.57 billion (12 trillion baht) in 2017, according to the US Census Bureau.
President Trump's hefty tariffs may reduce the US trade deficit with China, but Thai trade has more to lose than to gain.
Theoretically speaking, imposing higher tariffs on imports compels citizens to buy less of these goods because of higher prices. The other objective of a higher import tax is to encourage purchases of locally made products instead.
While the trade row is seen as a raging battle between the globe's hegemons, Thailand's trade future stands at a crossroads because the country has considerable trade exposure to both the US and China.
Although the impact remains ambiguous, Thailand is forecast to lose more than it gains from the trade spat between the US and China, with a net negative effect on exports of $280-420 million for the rest of 2018, reaching $4.5 billion if the retaliatory trade measures continue past 2018, says Kasikorn Research Center (K-Research).
The research house believes that the trade war could extend into the next 2-4 years, shaving 0.3-0.5 percentage points off China's economic growth in 2018 if that scenario takes hold, said K-Research assistant managing director Siwat Luangsomboon. The effects on Thai exports will therefore be larger, as China is Thailand's major export destination.
"If the trade war is prolonged, the direct impact on Thai exports would be $1.76 billion, and indirect impacts through supply chains would amount to $2.8 billion next year," Mr Siwat said.
Opportunity cost
In January, the US slapped tariffs on imported washing machines and solar panels, in Mr Trump's most significant trade move since his decision to pull the US out of the Trans-Pacific Partnership and renegotiate the North American Free Trade Agreement.
The president then said in June that he would impose tariffs on $50 billion worth of Chinese goods. The first tariffs are due to come into effect on July 6.
But China has not backed down from the US's trade protectionist moves. The world's second-largest economy retaliated by saying it would collect a 25% levy on $50 billion worth of US goods, also starting July 6. Taxes will be charged on imports of agricultural products, cars and marine products from the US, to name a few.
China is not the only market targeted by the US. From next-door neighbours (Canada and Mexico) to trans-Atlantic allies (the EU), the US is waging a trade war with these countries by imposing a 25% tax on imported steel and a 10% levy on aluminium.
Unsurprisingly, these countries reacted with indignation to the US tariff measures, with the EU set to enact retaliatory tariffs on some €2.8 billion (107.9 billion baht) worth of US goods, including jeans, motorbikes and bourbon whiskey. These are due to come into effect on June 22.
Thai products that are part of the US's and China's supply chains could be affected once the US tariffs are in place, according to Siam Commercial Bank's Economic Intelligence Unit (EIC). Most vulnerable of all are products exported from Thailand to China as parts, to be assembled further in China and exported to the US as final goods.
Products at risk of heftier tariffs include electronics, such as industrial circuits, cameras, LCDs, computer parts and CPUs (23% of Thai exports to China), as well as primary plastics (10% of Thai exports to China) that could be used in toys and plastic products that China exports to the US, the EIC said.
"If tariffs are imposed, China may import less of these goods from Thailand as their exports to the US decline," the think tank said.
Thailand, however, stands to benefit from a potential shift in Chinese investment and an increase in exports to the US, according to the EIC.
Since the US has chosen to impose tariffs on the types of Chinese goods that can be substituted by imports from other countries, certain Thai products may benefit from higher demand from the US.
One example is electronics and electric appliances, which together account for more than 48% of the value of Thai exports to the US, the EIC said.
"In addition, as Chinese goods are the only targets of the new tariffs, Chinese manufacturers may adjust their investment plans by expanding manufacturing capacity to countries outside China," the EIC said. "Indeed, Thailand is one of the candidate hosts where Chinese firms can produce and export to the US."
Net effect from retaliatory tariffs between the world's top two economies is an estimated gain of 0.05% to Thailand's GDP, said Somprawin Manprasert, chief economist and executive vice-president of Bank of Ayudhya.
"The important point is that most gainers and losers are not in the same industries, so measures to alleviate the impacts should be adopted," Mr Somprawin said.
Thai intermediate goods manufacturers via China's supply chain, including electrical machinery and equipment and electronics and computers, are expected to feel the pinch from the trade spat, he said.
Moreover, Thailand could become a dumping ground for certain products from the two giant economies, he warned.
As for winners, Mr Somprawin forecasts that Thailand's agricultural sector, including cassava, fruits, rice, seafood and meat, could take advantage of the trade rift, as China would shy away from importing these items from the US.
Narongsak Plodmechai, managing director and chief investment officer at SCB Asset Management, said in a research note that the trade war would deal a blow to Thailand's electronics manufacturers, which are suppliers to China.
But the impact is expected to be limited to a mere 2% of Thailand's export value, and the effect will be reduced to 0.14% if China re-exports Thai-made products to the US, he said.
Mr Narongsak agreed with Mr Somprawin that Thailand has opportunities to export more to China, particularly in farm products.
Besides, the trade war could present an opportunity for Thailand in the long run from the possibility that Chinese electronics manufacturers could relocate their production bases to other countries to avoid tariff impact, he said.
Widespread impact
On March 8, Mr Trump ordered a steep 25% tariff on steel and a 10% tariff on aluminium imports, citing national security considerations under Section 232 of the Trade Expansion Act of 1962.
This policy has shaken up the global steel market, including Thailand and many local steel associations, with the Association of Thai Cold Rolled Flat Steel (ATCF) saying Thailand's steel industry is poised to lose up to 2.6 billion baht worth of steel exports.
According to an Iron and Steel Institute of Thailand study, Thailand is estimated to lose 10.47 billion baht or 383,496 tonnes of steel exports as a direct consequence of the US's stringent tariffs.
With such a significant loss, the Commerce Ministry is intensifying its call to exempt Thai-made steel and aluminium products from the list of US import duties.
Rajiv Mangal, chief executive of Tata Steel Thailand Plc, also voiced concern over how China could dump its steel in Southeast Asian countries after being cut off from the US.
At present, China exports steel to the US at a rate of 900,000 to 1 million tonnes a year.
"Once the US uses this policy to protect its steel industry, we believe that China will find new markets to replace the US," Mr Mangal said.
Tata Steel estimates that the biggest risk from the Trump administration's decision is rising raw materials prices, ranging from iron ore and ferrous scrap metals to coking coal and graphite electrodes.
The steel policy is intended to prod US steel producers to do their business in the US and create jobs.
"The steel policy is designed to be mainly against China's steel exports, because the US wants to increase its local production capacity," Mr Mangal said. "But we forecast that the US will need to import more ferrous scrap metals to produce steel, with the same thing happening to many other countries. This will increase prices and affect production cost, and steel users will have to shoulder higher prices."
Meanwhile, a 25% tariff is being considered on vehicles and auto parts imported into the US. Moody's Investors Service said such measures are broadly credit-negative for the global auto industry.
"Tariffs on imported vehicles and parts would be negative for nearly every group in the industry -- automakers, parts suppliers, car dealers and even transportation companies -- as it rippled across the globalised supply chain, which we forecast will produce about 96.7 million light vehicles this year," said Moody's senior vice-president Bruce Clark.
For Thailand's automotive industry, auto shipments to North America represented roughly 8% of total exports with 37,325 units from January to May, down 0.9% year-on-year, according to the Federation of Thai Industries.
The Thai Auto Parts Manufacturers Association reported that auto parts shipments to the US accounted for 14% of total exports, rising 20.6% year-on-year to $2.78 billion in 2017. The US was the top importer of Thai auto parts.
President Achana Limpaitoon said the 25% steel tariff and 10% aluminium duty will have an impact on auto parts because they will drive up prices of raw materials used in producing auto parts.
"We are concerned about the global trade war sparked by tariffs from the US, which pervasively affect many sectors in Thailand," Mrs Achana said.
Circumvention practices
The impact on Thai exports is expected to be limited, as the US's tariff hike is scheduled to come into force from July 6 onwards, said Visit Limlurcha, vice-chairman of the Thai National Shippers' Council.
He also believes that the impact on Thailand's overall exports is still marginal this year, as most large-scale purchase orders have been made in advance until year-end.
According to Mr Visit, only small and medium-sized purchase deals are made in advance for only three months, as exporters and importers alike are wary of foreign exchange risk.
But a clearer picture of the negative and positive effects on Thai exports is expected to emerge by next year, he said, adding that China's investments are also expected to divert from the US and into countries that are exempt from US tariffs.
"What we are concerned the most about now is the circumvention [by foreign traders] using Thailand as the base for exports," Mr Visit said. "Authorities themselves should speed up issuing preventive measures to curb circumvention practices, otherwise the problem could transpire and Thailand could possibly be subjected to protectionist measures by the US if exports from Thailand unnaturally surge."
Circumvention practices include a minor modification of goods, leaving the essential characteristics unaltered; the export of goods (with minor modifications) from third countries; and the exporter reducing prices to skirt the full extent of dumping duties, thereby prolonging the injury intended to be prevented.
"I believe Thai exporters themselves have realised such trade threats and are busy looking for new markets, but the government itself needs a close watch on trade measures and retaliations by the affected countries," Mr Visit said.
Aat Pisanwanich, the director of the University of the Thai Chamber of Commerce's Center for International Trade Studies, said the trade standoff between the US and China will increase imports of Thai products to replace goods affected by the trade dispute.
According to Mr Aat, Thai products expected to benefit from the US tariffs on China include rubber, machinery, electric appliances and furniture.
On the other hand, items that could suffer include chemicals, medicines, steel and steel products, aluminium, and automobiles and parts.
The centre predicts higher Thai shipments to the US market in a range of 5.19-12.99 billion baht.
Meanwhile, Thai products that are expected to see higher shipments in light of China's tariffs on the US include fruits, wheat, corn and processed fruits. Those which are subject to lower exports are meat, soybeans, cotton, and aircraft and parts. Thai shipments' gain is estimated at 3.34-8.35 billion baht.
In terms of supply chain, Thailand is likely to see its exports to China and the US drop by a combined 466 million to 1.16 billion baht, or 0.003-0.009% of GDP.
US imports of Thai raw materials make up 0.1% of total production, while Thai raw materials account for 0.2% of China's production.
The more visible impact is expected to reveal itself later this year, once higher tariffs imposed by the US and China become effective from July 6 onwards. The impact will intensify when the US raises import tariffs on automobiles and parts from the EU.
Mr Aat said an indirect consequence is that Thailand is at risk of becoming a dumping ground for the US and Chinese products affected by the higher tariffs.
It is estimated that 6.05-15.12 billion baht worth of products, including machinery, electrical appliances, electronics, aluminium, and steel and steel products will be dumped on Thailand.
Mr Aat suggested that Thailand rev up bilateral and multilateral trade cooperation, particularly through trade agreements with the US and the Regional Comprehensive Economic Partnership (RCEP).
The RCEP was launched in November 2012 with the aim of establishing deeper economic cooperation among the 10 Asean members and six dialogue partners (China, Japan, South Korea, Australia, India, New Zealand).
Member countries represent 29% of global trade and have a combined population of 3.35 billion.
The Thailand Development Research Institute earlier estimated that joining the RCEP would boost Thailand's GDP growth by 4.03 percentage points.
