Features

The fallout from the trade war: what next for Asia?

The trade war between the US and China has left Asian economies caught in the middle,

947_MW_P04_Markets_Bottom

Vietnam's clothing sector could profit at China's expense

2008 AFP

The impact of the US-China trade war on the rest of Asia has been modest so far, says Gareth Leather of London research consultancy Capital Economics. Exports to mainland China from Korea and Taiwan (which often supply intermediate goods that are processed and shipped on to the US) are sharply down since last year, yet that has been largely offset by stronger direct demand from US firms seeking alternative suppliers.

Malaysia, Singapore, Thailand and the Philippines have probably lost a modest 0.1%-0.2% of GDP from the disruption. For less open economies such as India and Indonesia the trade war has been "negligible".

Trade disruption typically strengthens the dollar and weakens the Chinese renminbi as investors turn to the perceived safety of US assets. That leaves these economies caught in the middle, says Udith Sikand in Gavekal Research.

Weak currencies cause domestic inflation and make it more expensive to service foreign debts, but an even weaker yuan could also make their manufacturers less competitive against China. South Korea, Taiwan and Thailand look the most well prepared for this scenario.

Malaysia and India, where central banks have been running dovish monetary policies, look the most exposed to inflation. The dispute has already prompted a reorganisation of global trade networks, says Keegan Elmer in the South China Morning Post. Vietnam's exports to the US were up 29% year-on-year in April and foreign investment has jumped.

A study last year by The Economist Intelligence Unit found Vietnam and Malaysia well-positioned to take overIT equipment manufacturing from China, while Bangladesh, India and Vietnam couldgrow their garment manufacturing industries.

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
Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022
Tech stock crash – dotcom bust 2.0 is upon us
Tech stocks

Tech stock crash – dotcom bust 2.0 is upon us

It’s carnage in the tech sector as the market crashes. But that spells opportunity for canny investors, says Matthew Lynn
19 May 2022
The tech-stock bubble has burst – but I still want a Peloton
Stockmarkets

The tech-stock bubble has burst – but I still want a Peloton

Peloton was one of the big winners from the Covid tech boom. But it's fallen over 90% as the tech stock bubble bursts and and everything else falls in…
19 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
Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022