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The Impact of China-US Trade Friction on China-ASEAN Economy and Trade

Post Time:2018-10-15 11:06:57

  The other day, Xu Ningning, Executive President of China-ASEAN Business Council said in an interview that the promotion of China-ASEAN cooperation is a realistic choice for regional economic growth and a common need for consolidating bilateral strategic partnership. That is to say, the necessity to strengthen China-ASEAN economic and trade cooperation is determined by bilateral interests of development regardless of whether there is China-US trade friction or not.

  China-ASEAN Business Council (CABC) is one of the dialogue and cooperation mechanisms between China and ASEAN, a dialogue and cooperation mechanism representing business sector. In 2015, Commercial Departments of ten ASEAN countries’ Embassies in China jointly conferred the Chief Chinese Expert of ASEAN Business Award on Mr. Xu Ningning.

  Mr. Xu Ningning introduced that, together, China and the United States accounted for 20% of ASEAN’s foreign trade in 2017. China is ASEAN’s largest trade partner while the United States is ASEAN’s fourth largest trade partner.

  He analyzed the major impacts of China-US trade friction on China-ASEAN economic and trade:

  1. China-US Trade Friction will Drive More Chinese Enterprises to Invest in ASEAN

  In order to bypass the US market barriers, some Chinese enterprises will turn to invest and build factories in neighboring ASEAN regions and then sell products to the United States after being produced in ASEAN. Due to the constraints of supporting industries, the machinery and equipment, raw materials and accessories required for production need to be imported from China. Therefore, the trade diversion brought by such investment will increase the trade volume between China and ASEAN. And also it will increase ASEAN’s foreign trade value, especially with the United States, which may expand trade surplus of ASEAN to the United States.

  Take Cambodia as an example, according to the latest data report released by the US Census Bureau, from January to July 2018, the bilateral trade between Cambodia and US totaled 2.36 billion USD with a year-on-year increase of 25.3%, and the trade surplus reached 1.87 billion USD. The report shows that in the first seven months of this year, Cambodia’s exports to the United States were 2.1 billion USD with a year-on-year increase of 26.9%; US’s exports to Cambodia were 250 million USD with a year-on-year increase of 12.8%. The United States is the second largest export market of Cambodia following the EU and the destination of 25% of Cambodia’s export commodity. Most of Cambodia’s exports to the United States are textiles and shoes. In 2017, Cambodia’s exports to the United States amounted to 3.07 billion USD, and the exports of the US to Cambodia was 400 million USD. According to a press release issued by the Cambodian Ministry of Commerce, Cambodia will continue to enjoy two years of preferential duties from the US according to a government budget worthy of 1.3 trillion USD signed by US President Trump, which is from January 1st 2018 to December 31st 2020.

  Xu Ningning pointed out that China and ASEAN are both friendly neighbors and important economic and trade partners. 2018 marks the 15th anniversary of the establishment of the strategic partnership between the two sides. With the sustained and rapid economic growth, China and ASEAN have became the shining "Gemini" in the global development map and also injected positive energy into the building of an open world economy. At present, China is the largest trade partner of eight among ten ASEAN countries and the fourth largest source of foreign investment in ASEAN. China-ASEAN Business Council will continue to work to assist the cooperation of enterprises from both sides.

  Xu Ningning said that there are many advantages in the cooperation between China and ASEAN enterprises. It has the location advantage for cooperation: linked by the mountains and rivers, China and ASEAN neighbors to each other and enjoy convenient transportation. ASEAN is also the nearest station of the construction of the Maritime Silk Road. It has a good foundation for cooperation: China has been the largest trade partner of ASEAN for nine consecutive years and ASEAN has been China's third largest trade partner for seven consecutive years.

  ASEAN is the largest foreign investment destination for Chinese enterprises in the past five years as well as the fifth largest export market for service trade and source of imports of China. It has the cooperation policy of an open market in China and ASEAN Free Trade Area and also has common needs for cooperation. Both China and ASEAN countries are committed to boosting economic growth and have abundant business opportunities. The construction of the ASEAN Economic Community and the construction of the Maritime Silk Road complement each other. Based on this, more and more Chinese enterprises have entered ASEAN in recent years, and China-US trade friction will drive more Chinese enterprises to invest in ASEAN.

  2. China-US Trade Friction will Affect the Economic Growth of East Asia

  China and ASEAN are highly correlated in economy. If China's economic growth slows down due to China-US trade friction, it will certainly leads to economic slowdown in ASEAN countries. A fast economic growth in China means more products needed to be imported from ASEAN countries, commodities in particular. Similarly, a fast economic growth in ASEAN means more products to be imported from China, including mechanical products, building materials, daily necessities, etc. Chinese products have advantages in cost performance sales in ASEAN countries.

  The recent years witnessed an increase in currency swap between China and relevant ASEAN countries as well as in the amount of RMB used in trade. RMB and ASEAN currencies are correlated in terms of value stability. Besides, the stock markets in China and relevant ASEAN countries also have a mutual influence on each other.

  The trade friction initiated by the US not only undermines China’s economy, but also the economy in ASEAN and even the world at large.

  It was stated in the Global Economic Outlook issued by the World Bank on 5th June 2018 that the extensive increase in global tariffs would have a major negative impact on the global trade. It was predicted that by the year of 2020, the global trade volume would decrease by 9%. The impact on emerging markets and developing economies are particularly obvious especially the economies which are highly correlated with American trade and financial markets.

  3. China-US Trade Friction will Undermine Relevant Industry Chains between China and ASEAN

  China-US trade friction will not only change China-US industry chains but also the relevant ones including the industry chains between China and ASEAN, such as electronics, garment and footwear and so on. The division of industrial chains of American products produced in China and ASEAN, e.g. The components and parts of American electronics are produced in countries like Singapore and Malaysia, assembled into finished products in China and then sold to America. However, such industry chain will be broken by the high tariff imposed on China by America, which will cut off the supply chain, reduce production efficiency and increase cost and price of sales.

  It was pointed out in World Economic Outlook issued on 17th April 2018 by International Monetary Fund that the increase in tariff and non-tariff trade barriers will undermine the global value chain, slow down the spread of new technologies, which will lead to a decline in global productivity and investment. An American well-known think-tank, Peterson Institute for International Economics stated that if America imposes trade sanctions on China and finally leads to Chinese countermeasures, countries and regions that export intermediate products and raw materials will also take serious hits.

  4. America’s Restrictions on the Development of Chinese High-tech Products Will Affect Industrial Upgrade in ASEAN

  One of the major intentions for America to initiate trade friction is to restrict China’s development in high-tech products and restrain China from implementing Made in China 2025 which benefits not only China but also many other countries, especially the fast growing ASEAN countries neighbouring China. This is because the price of Chinese products, technologies and services are cheaper than that from America. The trade friction initiated by America will contain the investment momentum of enterprises, impede the spread of new technology, which will do harm to the industrial upgrading and economic growth of ASEAN.

  Xu Ningning emphasized that Chinese enterprises should have long-term preparations for China-US trade friction.

  On September 16, Orlins, President of the National Committee on US-China Relation, said that Trump considered the trade between the United States and China to be imbalanced as early as the 1990s. Even if it is not under the Trump's presidency, the trade disputes between China and the US will also come out someday. Since this year, there appeared a rare agreement among US Congressmen in facing with the China-US trade friction.

  China-US trade friction is not only provoked by the uperhawks in the Trump White House circle, but also represents the consensus of American mainstream political elites to a certain extent. It is not a temporary strategy which Trump took to win the 2018’s midterm elections or future elections to win in next national election. The trade friction is not going to end completely because the concerns about China's development in the US are not limited to the Trump administration. The trade friction is only one part of the US’s adjustment in general strategy towards China. Its fundamental intention is to restraint China from rising to a major power in the world. Trade friction is only part of a comprehensive strategic containment.

  On 18 September, as for the US 's decision to impose tariffs on 200 billion US dollars of Chinese commodities exporting to the United States, Chinese side will take countermeasures accordingly.

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