The intensified trade war between America and China poses serious consequences and economic impacts for world economy. The trade war has deepened and its impact can be felt on export orders and manufacturing activity in many countries. But it is just the beginning and worst is yet to come.
The South East Asian economies fear to suffer the most in the trade war. The contraction is already taking place in the manufacturing in Malaysia and Taiwan. While South Korea is experiencing a slow down and China has only marginal growth. The factory output and export orders have already started to deteriorate.
The latest data showing the weaker industrial production in South Korea and Japan, which is lowest and slowest in last 18 months. Meanwhile the decision of Federal Reserve to hike the interest rates in US will create more problems for some economies in Asia.
Worryingly, the prospects for higher U.S. rates could feed back more market pain for the region´s externally vulnerable economies — Indonesia, India and the Philippines, which have already been forced to raise rates to mitigate a sell-off in currencies, stocks and bonds.
Some Asian economists are predicting that present conditions will tightenthe monetary conditions around the world, a slowdown in Chinese demand, and financial market turmoil that affects sentiment and investment decisions. For them, the real economic shock is yet to come. China´s manufacturing sector barely grew last month after stalling in September and export orders contracted further.
An official survey last week showed that the manufacturing sector expanding at its weakest pace in over two years, hurt by slowing demand both externally and domestically.
The pressure on China´s economy is not just external. Economic growth cooled to its weakest quarterly pace since the global financial crisis at 6.5 percent, exhibiting lackluster domestic demand by Chinese standards.
USA has already imposed tariffs on $250 billion worth of Chinese goods, and China has retaliated with duties on $110 billion worth of U.S. goods in a row sparked by U.S. President Donald Trump’s demands for sweeping changes to China´s intellectual property, industrial subsidies and trade policies.
The Asian markets are already under pressure. The capital flight is picking pace from these economies to more developed economies. Those economies with high current account deficits have been particularly vulnerable to capital flight. The rate hikes that central banks deployed to stop rapid declines in their currencies might also further slow activity.
It will be wrong to think that trade war between China and America will badly affect every Asian economy. There are few that will benefit from this increased battle. Vietnam and India seems as the major beneficiaries. Vietnam will stand out as the real winner between the two.
Vietnam might emerge as the real beneficiary of the intensified trade war between the two largest economies in the world. Vietnam still has the cheapest labour force in the region to attract new investments from American companies. Most importantly, it has no dispute with US on trade and other issues. The American trade with Vietnam is not under the Trump’s radar to impose tariffs and other measures.
It´s seen as potential winner from the Sino-U.S. trade war as companies considering rebasing and re-routing their supply chains away from the crossfire between the world´s two largest economies.
For economists, Vietnam is the least impacted country in Asia because if global companies have to move, Vietnam is a viable option.But it will take a long time for Vietnam to take up some of the market share that China leaves behind.
The increased problems in American economy and intensified trade war pose serious challenges for the world economy. This trade water alone can cause another economic crisis and recession in the world economy. If China and America failed to reach an agreement on trade and other issues then the prospect of a new crisis will become reality. It will affect both the economies.
If Trump thinks that American economy is strong enough to absorb the economic shocks of trade war than he is mistaken. If Chinese economy is going to suffer in this trade war initiated by Trump then the American economy will also suffer.
No other country is in the position to supply cheap goods and products to America on the scale of China. The consumer boom in USA will be hit very hard. Trump is playing a big gamble and price might be much higher than what he thinks.
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22 January, 2019