The US trade war with China has barely begun

The tit-for-tat raising of trade barriers has started to be felt by consumers – but it's not been all bad.

923-Pence-634

Trump's trade war has made Thanksgiving cheaper

There is one upside of the US-China trade dispute, says Justin Lahart in The Wall Street Journal: "It is keeping the cost of Thanksgiving down." Chinese tariffs on US agricultural products have dampened Chinese demand, boosting supplies of some Thanksgiving staples. Cranberry farmers, who have previously benefited from Chinese consumers' strong demand for the berries, are now dealing with a supply glut. The latest inflation report revealed that the price of turkey was down by an annual 4.9%.

What next? Trade tensions continue to simmer between the world's two superpowers. In July, the US introduced 25% levies on over 800 Chinese imports, including industrial robots and electric cars, says Owen Walker in the Financial Times, and the list keeps growing. Beijing has retaliated with similar tariffs on imports from the US including soya beans, beef and whiskey.

US Vice President Mike Pence says the US won't "change course until China changes its ways".So there is little prospect of a cessation of hostilities. But so far, at least, the escalating trade war has had scant impact on trade data, says Chen Long on Gavekal Research.

The first round of US tariffs was imposed in July, "but China's export growth actually picked up to 6% in July and 8% in August, from 3%-4% in the second quarter". Note that the various tariffs that have been imposed so far "have covered only 2% of world trade", says Neil Shearing on Capital Economics. But we are unlikely to get off scot-free.

Tariffs distort global trade flows, decrease efficiency and push production to more expensive locations. Investors have been concerned about the knock-on effect on Singapore, South Korea and Taiwan, which are some of the world's most trade-dependent economies.They are also crucial to regional supply chains between China and the US. In Taiwan, exports of components such as computer chips to mainland China comprise almost 2% of GDP .

Some countries are profiting

Yet some nations might benefit from the trade war. This includes Vietnam and Malaysia, according to a recent Economist Intelligence Unit report, in particular their low-end manufacturing of technology products such as intermediate components, along with consumer goods such as mobile phones.

That's because some major electronics companies already have existing plants in these countries. Samsung and Intel have a presence in Vietnam. "This means that they would be able to re-deploy investment and production relatively smoothly." Another plus point for both states is solid infrastructure. The impact of the trade war has become another issue investors in Asia need to factor in.

Progress in the Philippines

Economists have long urged the Philippines to "walk on two legs" so that its economic growth does not depend solely on services, says The Economist. "Instead it has kept hopping but with impressive speed." The economy is growing by 6.1% year on year.

The populist president, Rodrigo Duterte, has spooked investors but his violent crackdown on crime has also meant that "economic matters have been left largely to well-trained technocrats". They have been trying to help the economy develop a second leg by improving infrastructure. The government has devoted PHP9trn ($170bn) into a project to bolster infrastructure expenditure to more than 7% of GDP (up from 5%) by 2022.

This spending spree has fuelled a budget deficit and a current-account shortfall. The latter has depressed the peso, which in turn has contributed to inflation of 6.7%. "So rather than celebrating record per capita GDP, Duterte's administration should keep an eye on the price of bread and rice," says Panos Mourdoukoutas in Forbes.

Still, the central bank is lifting interest rates to squeeze out inflation, and the state has loosened restrictions on foreign investment to secure much-needed capital. In the long run, the infrastructure spending should pay off. No wonder a study by the McKinsey Global Institute thinks the Philippines could be one of few emerging markets to achieve sustained growth over the next decade.

Recommended

What's behind Sri Lanka’s crippling debt crisis?
Emerging markets

What's behind Sri Lanka’s crippling debt crisis?

Sri Lanka has been hit by a triple whammy of economic shocks and has gone to the IMF for a bailout. It may just be the first domino to fall in a globa…
20 May 2022
Inflation is now at its highest since 1982 – is this the peak?
Inflation

Inflation is now at its highest since 1982 – is this the peak?

At 9%, UK inflation is at its highest for 40 years – and it’s not going anywhere soon, says John Stepek. That means you need to be much more active a…
18 May 2022
Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Hong Kong’s brain drain
Chinese economy

Hong Kong’s brain drain

A change in the political atmosphere and a harsh zero-Covid regime has seen thousands flee the global financial hub. Does it have a future – or will S…
14 May 2022

Most Popular

The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Aviva: a share for income investors to tuck away
Share tips

Aviva: a share for income investors to tuck away

Insurance giant Aviva is one of the highest yielding stocks in the FTSE 100 – and it’s cheap, too, making it a tempting target for income investors. R…
18 May 2022
Inflation is now at its highest since 1982 – is this the peak?
Inflation

Inflation is now at its highest since 1982 – is this the peak?

At 9%, UK inflation is at its highest for 40 years – and it’s not going anywhere soon, says John Stepek. That means you need to be much more active a…
18 May 2022