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US-China trade war has minimal effect on Philippines-EIU
MANILA, Philippines — The escalating trade war between China and the US is expected to have a minimal effect on the Philippines but at the same time, the country cannot benefit massively from the shift in production chains, according to a new report by The Economist Intelligence Unit.
In the report issued over the weekend titled “Creative Disruption Asia’s winners in the US-China Trade War,” The Economist IU said the prevailing trade war between the US and China would have the most impact on the global production chains of information and communications technology (ICT) products, automobiles and automotive parts, and apparel and readymade garments (RMGs).
US and China has so far imposed tariffs covering roughly $360 billion of merchandise trade.
The report noted that by distorting global trade flows, the conflict would push production to more expensive locations, forcing up prices and reducing efficiency.
The end-price of products would also be be higher than it would have been otherwise, adding to inflation and potentially forcing faster tightening of monetary policy in many markets.
Global trade flows are also set to slow, particularly in the short term, disrupting existing supply chains and dampening investor confidence.
“Still, there will be winners as well as losers. Tariffs tend to shift trade more than they reduce it and, as importers in China and the US look for alternative suppliers, new opportunities will open up for exporters in third-party markets,” the report said.
Some of these beneficiaries include Mexico and Europe, but the lion’s share of the gains from the trade war would fall to countries in Asia.
For ICT products, the Economist IU sees mild disruption in the export of ICT products by the Philippines. But at the same time, the country also cannot attract significant amounts of investment related to shifts in production chain because of its weak business regulatory environment.
“The Philippines will see mild disruption stemming from the trade war, owing to the importance of the Chinese market for shipments of ICT immediate components from that economy. However, we do not expect the Philippines to benefit massively from any shift in ICT export supply chains, owing to its weak regulatory business environment,” the report said.
“The country’s underdeveloped digital ecosystem will also be a further hindrance to investment, with internet speeds the slowest in Asia,” the report said.
In this industry, Malaysia and Vietnam stand to benefit the most as major electronic companies already have existing operations in these countries. These include Dell (US), Sony and Panasonic (Japan), Samsung (Korea), and Intel (US).
“This means that they would be able to re-deploy investment and production relatively smoothly,” it said.
The Philippines can also be expected to see some modest impact and benefit from changes in the automotive supply chain.
The Philippine automotive sector supports Japanese supply chains through the production of auto components, but its weak foreign investment regime is not attractive to investors.
“The Philippines has a strong auto components manufacturing and export sector built largely to support Japanese supply chains, but its legal and foreign investment regimes are not particularly attractive,” the report said.
Countries that stand to realize the most gains from shifts in production chains include Thailand and Malaysia as several car companies that already made these countries their regional automotive and parts manufacturing hubs geared toward exports.
Meanwhile, the report said no particular disruption or benefits for the Philippine ready made garment industry is noted.
Countries that stand to gain the most from shifts in production chain were: Bangladesh, Vietnam, and India, countries with strong garment industries that are also production hubs of major international fashion brands such as H&M, GAP, Levi’s and Zara.
These brands can easily divert orders to these countries if imports from China become too expensive in the US.
The Economist IU said countries in Southeast Asia can take advantage of the shift in production chain because this can bring in advanced equipment and technical expertise that can spur the development of these three industries.
“Even before the start of the US-China trade war, multinational companies were becoming increasingly wary about the risk of becoming over-dependent on China as a manufacturing base. Such fears have been aggravated by a combination of rising labor and land costs in China. Meanwhile, markets in South and Southeast Asia have looked increasingly attractive in their own right, as their consumer markets have developed,” the report said.
“The shift will help to drive the development of the local automotive, ICT and apparel sectors in South and South-east Asia, bringing in more advanced equipment and technical expertise,” it said.
Source: https://www.philstar.com/business/2018/11/05/1865848/us-china-trade-war-has-minimal-effect-philippines-eiu#2Aesxjlem1HZUQsc.99