Trade war ‘win­ners’ seek a truce

The Weekend Australian - - THE WALL STREET JOURNAL - Re­port­ing: Ben Otto in Jakarta, Chieko Tsu­neoka in Tokyo, Kwan­woo Jun in Seoul, Jef­frey T. Lewis in Sao Paulo, Paul Vieira in Ot­tawa, Emre Peker in Brus­sels and Rob Tay­lor in Can­berra.

Coun­tries watch­ing the US-China trade talks from the side­lines are anx­ious for the two sides to reach a deal and avert the dam­age a pro­tracted fight poses to the global econ­omy — even if many see the po­ten­tial to ben­e­fit from the dis­pute.

From Mex­ico to South­east Asia, na­tions see an op­por­tu­nity to at­tract man­u­fac­tur­ing ex­porters try­ing to avoid US tar­iffs on Chi­nese prod­ucts. Ja­pan’s car­mak­ers would stand to gain if the US and China im­posed re­cip­ro­cal car tar­iffs, and Brazil and Canada’s soy­bean farm­ers would have a chance to pro­vide more feed for China’s mas­sive hog herds.

“If Viet­nam is boom­ing due to in­vest­ment shift­ing from China, why can’t we?” In­done­sian Vi­cePres­i­dent Jusuf Kalla told a fo­rum this week.

But the threat of a trade war is dis­rupt­ing global mar­kets and busi­ness plans. De­spite the po­ten­tial short-term re­wards from the spat, most Asia-Pa­cific na­tions sup­port re­mov­ing trade bar­ri­ers in gen­eral — and bar­ri­ers to trade with China in par­tic­u­lar.

Pres­i­dent Trump and China’s Pres­i­dent Xi Jin­ping de­clared a tem­po­rary tar­iff truce on De­cem­ber 1, and mid-level of­fi­cials from both sides met this week, nar­row­ing some dif­fer­ences and set­ting up higher-level ne­go­ti­a­tions.

Many coun­tries trad­ing with China share Wash­ing­ton’s com­plaints about Bei­jing’s prac­tices, in­clud­ing sub­si­dies to its com­pa­nies, lim­it­ing mar­ket ac­cess to for­eign firms and re­quir­ing for­eign com­pa­nies to di­vulge their tech­nol­ogy.

Some coun­tries have pur­sued free trade ar­range­ments with­out the eco­nomic su­per­pow­ers. When Mr Trump with­drew the US nearly two years ago from talks to es­tab­lish a re­gional trade deal, the trans-Pa­cific Part­ner­ship, the 11 other mem­bers — in­clud­ing Ja­pan, Aus­tralia, Canada, Mex­ico and Viet­nam — went ahead with their own ar­range­ment, known as TPP-11, which took ef­fect De­cem­ber 30. A trade deal be­tween Ja­pan and the Euro­pean Union is set to kick in on Fe­bru­ary 1.

Ul­ti­mately, the US and China are in­dis­pens­able for many coun­tries.

There are “ab­so­lutely no win­ners from a con­tin­u­ing trade war”, said Aus­tralia’s Trade Min­is­ter Si­mon Birm­ing­ham.

He warned that the rift be­tween Bei­jing and Wash­ing­ton could se­ri­ously jeop­ar­dise global eco­nomic growth — though he said the TPP-11 deal had cre­ated op­por­tu­ni­ties as a counter to China-US ten­sions.

In South­east Asia, a pro­duc­tion and ship­ment hub that re­lies on trade with both China and the US, na­tions fear sup­ply-chain dis­rup­tions and slower global growth. The rapid ex­pan­sion of con­tain­er­port traf­fic over the past decade has made even the pas­sage of trade through South­east Asian coun­tries im­por­tant to the re­gion’s economies.

“The pub­lic view is that trade con­flict is bad and should be re­solved as soon as pos­si­ble,” said Deb­o­rah Elms, ex­ec­u­tive di­rec­tor of the Sin­ga­pore-based Asian Trade Cen­tre, a busi­ness-funded group that stud­ies trade pol­icy. “In pri­vate, the views could be more nu­anced. Some of­fi­cials are fairly con­fi­dent that a pro­tracted trade con­flict will drive firms out of China.”

Ris­ing Chi­nese labour costs were al­ready push­ing low-end man­u­fac­tur­ers to places such as Viet­nam, Cam­bo­dia and Bangladesh. The trade bat­tle, with its threat of pro­longed tar­iffs, is ac- cel­er­at­ing that trend.

Fash­ion house Steve Mad­den, which sources a ma­jor­ity of its prod­ucts from China, says it has shifted about 15 per cent of its hand­bag pro­duc­tion to Cam­bo­dia and hopes to dou­ble that per­cent­age in 2019. “That gives us frankly about a three-year head start on most of our peers be­cause many folks are just now try­ing to make that move … in light of these tar­iffs,” chief ex­ec­u­tive Ed­ward Rosen­feld said last year.

GoPro in De­cem­ber said it would move most of its US-bound cam­era pro­duc­tion out of China by mid-2019 “to mit­i­gate the po­ten­tial im­pact of in­clu­sion on any new tar­iff lists”. The Cal­i­for­nian com­pany didn’t say where it would shift pro­duc­tion.

Pol­i­cy­mak­ers in South­east Asia are press­ing to ex­pand trade. In­done­sia, Thai­land and The Philip­pines have ex­pressed in­ter­est in join­ing the TPP bloc. Of­fi­cials are dis­cussing a sep­a­rate trade pact that would bring to­gether 16 economies.

Else­where, the US-China trade fight was ex­pected to boost agri­cul­tural sec­tors in some coun­tries, such as Brazil and Canada, af­ter China im­posed tar­iffs on US farm­ing prod­ucts. But in many cases, dis­rup­tions to agri­cul­tural mar­kets have off­set the ben­e­fits.

“Some peo­ple said there were op­por­tu­ni­ties for Cana­dian [pro­duc­ers] to back­fill in the Chi­nese mar­ket,” said Mark Agnew, se­nior di­rec­tor of in­ter­na­tional pol­icy at the Cana­dian Cham­ber of Com­merce. The prob­lem, he said, was that it led to a sur­plus of US farm prod­ucts be­ing sold else­where, which de­pressed global food prices. “That poses a prob­lem for Cana­dian busi­nesses,” he said.

For some US al­lies, the trade fight wedges them un­com­fort­ably be­tween their main se­cu­rity part­ner, the US, and their eco­nomic part­ner­ships with China.

“Both China and the US are im­por­tant mar­kets for Ja­pan,” said Ak­i­hiko Ya­sui, head of re­search on Europe and the Amer­i­cas at Mizuho Re­search In­sti­tute in Tokyo. “It wouldn’t be good if Ja­pan were put in a sit­u­a­tion where it had to pick a side.”

Busi­nesses in South Ko­rea, a US ally that sends about a quar­ter of its ex­ports to China, would ben­e­fit if the US gets China to adopt prac­tices more wel­com­ing to for­eign en­ter­prises. On the other hand, China could re­tal­i­ate if a com­pany is seen to take sides.

Firms in­clud­ing Sam­sung have re­cently re­duced their pres­ence in China and moved op­er­a­tions else­where to hedge against risk. Trade un­cer­tain­ties, ris­ing labour costs and a de­clin­ing mar­ket share in China fac­tored in Sam­sung’s de­ci­sion to build the world’s largest smart­phone fac­tory in In­dia.

BLOOMBERG

Viet­nam’s econ­omy ex­panded 6.8 per cent last year as in­vest­ment shifted from China

BLOOMBERG

Brazil’s soy­bean farm­ers could sell more to China

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