Dealing with Trump is half the story

Bangkok Post

a day ago

This will be an eye-opening article. It is an analysis that readers have not read anywhere. No one seems to realise that after a mega-earthquake in the ocean, giant tsunamis will always follow. If Donald Trump's reciprocal tariffs are comparable to a mega economic earthquake, President Xi Jinping's reactions will have the impact of a giant economic tsunami.
Because the US is loud and threatening, the world bows to US high tariff demands for transshipment products, massive market openings, trillion dollars of investment commitments, and huge product purchase promises. That is because the US is the largest buyer in the world with imports valued at US$3.3 trillion in 2024. The world conveniently ignores that there is a country affected most by the US onslaught called China -- the second largest buyer with a $2.6 trillion import demand. Its import volume is 78.8% of the US'. Despite its import volume, the world pays no attention that a shrinking Chinese economy could drastically affect global trade as well.
The main objective of Mr Trump's reciprocal tariff scheme is to reduce China's trade surplus with the US. The direct surplus is $300 billion but after including indirect surplus through transshipments, the total surplus would be $350 billion. That is why Asean nations could not reach an agreement with Mr Trump without accepting a 40% or more tariff on transshipment products to block China from avoiding proper taxation.
After accepting the penalty tax rate for transshipment products, many Asean countries seem to be overjoyed with their reciprocal tax rates being reduced to 19%-20%. Hail President Trump. They are unaware that for Asean, China is a bigger trading partner with $389 billion of import purchases. The US imports less from Asean, or $352 billion. Subtracting "transshipments" from China, US imports of Asean products would fall to $302 billion.
Mr Xi is more important when it comes to trade issues than Mr Trump, around here. This is how fewer exports from China to the US would hurt Asean economies. First, there will be less need to import Asean components to be assembled into finished products for US customers. Second, consumption demand for Asean products, such as fruit and seafood, would be softer due to reduced export income. Third, instead of importing from Asean, China will conduct import substitution to utilise their half-emptied factories.
Fourth, excess capacity would lead to dumping of already cheap products onto Asean markets. Do not forget that dumping is tax-free under the China-Asean Free Trade Agreement. The fifth one is less Chinese tourists visiting Asean countries.
Thailand is one such country that fails to realise that a giant Chinese tsunami will be more damaging than Mr Trump's 19% reciprocal tariff earthquake. By adjusting certain items such as transshipment products and products indirectly exported to China, Thailand's export value to both China and the US was almost equal at 1.5 trillion baht in 2024.
So far, the government and the private sector are only preparing to deal with an export reduction arising from Mr Trump's tariff. Nobody is prepared for an export reduction from China, which is likely to be more severe due to the reasons above.
Tourism income is an important but overlooked issue. In 2024, foreign tourists brought in 1.4 trillion baht of income to Thailand. That is equivalent to 7.6% of GDP. About 19% of that tourism income came from Chinese tourists. The number of Chinese tourists has already dropped 34% since the beginning of the year. Mr Trump's 30% tariff on Chinese products will make this number much worse. A 50% drop in Chinese tourists?
I am using estimates published by the Independent, a trustworthy online British newspaper. I believe the numbers are the work of Prof Niven Winchester at Auckland University of Technology in an article titled "GDP changes due to additional US tariffs".
The effect on Thailand is a 0.44% GDP reduction. Want to know the GDP reductions for Vietnam and Indonesia? They are 0.30% for Vietnam and 0.11% for Indonesia. The same or similar tax rate produces different results in different economies. Those, particularly the government, who think Thailand has a better deal than its peers should think again.
Since we are already looking at the GDP effects from the tariff, it is a 0.34% reduction for China, 0.29% reduction for South Korea, 0.13% reduction for the EU, and a 0.09% reduction for Japan. As for the US itself, which has to pay for higher priced imports, the GDP reduction is 0.36%. Out of 15 economies under this estimation exercise, Thailand is the second-most-affected economy. Number one is Switzerland with a 0.47% GDP reduction. It is not that Thailand has a stronger economic structure, but the Swiss were hit with a 39% reciprocal tariff rate.
The following are my estimations, and not from Prof Winchester. The Chinese effect on Thai GDP would be twice as strong as the US effect. Because it would include import substitution and product dumping effects. My estimation is that less buying from China would cut 0.88% from Thai GDP growth. Furthermore, fewer Chinese tourists would cut another 0.55% from GDP. As such, the China tsunami would cause 1.43% in total damage to Thai GDP. The negative impact on Thai GDP is three times higher than the 19% Trump tariff.
While both the government and the private sector is fully geared up to embrace the impact of a 0.44% GDP cut from Mr Trump's earthquake, no measures have been prepared, or even discussed, for China's tsunami.
I do not mean to blame the Thai negotiation team. To have a reciprocal tariff rate on a par with our peers is essential. There are more issues than just trade. They are the issues of competitiveness and investment attractiveness.
However, there is a price to pay to Mr Xi. I hope Mr Xi is a gentleman and does not take revenge on ungrateful Asean nations for abandoning China. I am talking about non-tariff barriers like raising product standards and requiring complicated documentation for imported products. Worst of all, China should not provide subsidies to local manufacturers to compete against Asean imports.
Before I end the article, there are a couple of things on my mind about the agreement with the US. One is the definition of transshipment products. There is no clear agreement on Rules of Origin. If using the Asean standard, it requires a minimum of 40% of local content. If using the US standard, it varies from product-to-product, ranging from 50% of local content to 70%. Furthermore, the US does not trust local certification. All Rules of Origin on imports are verified by US Custom and Border Protection.
A second issue is the commitment to purchase US products. Can the Thai government commit private companies to purchasing products from the US such as Thai Airways buying 100 Boeing jets? Mr Trump's tariffs have shaken the whole world.
They have shaken China and shaken Thailand. Unfortunately, the shaking China will turn around and shake Thailand. The country must be prepared to be shaken by Mr Xi. If my analysis is right, the impact is frightening.