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21 Sep 2009

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US – China Trade Barriers: Affecting Thai and World Trade (Business Brief No.2639)

The US government's recent increases in import duties on auto-tires from China has affected Chinese tire exporters considerably because they have to pay higher tariffs of up to 31 percent (increasing from the former 4 percent) to 35 percent in the first year. Hence, China has filed a World Trade Organization (WTO) complaint on the new US tariffs on their tires. In addition, they demand further investigations whether the US is dumping automobiles and chicken products in China.
Initially, US exports of chicken to China are expected to be directly affected by this trade friction because China is now the US' major chicken export market, particularly for chicken paws. The counter-retaliations between the US and China may accelerate the rising trend of trade barriers in global trade, so the global economic deceleration may be stretched out and economic recovery will likely be inhibited. The G-20 summit to be held September 24-25, 2009, will be considering the problem of this new rash of trade barriers.
China's exports facing trade barriers is an obstacle that is expected to negatively impact Asian – including Thai – exports of raw materials and intermediate goods shipped to China because it is one of the world's largest production bases that imports goods from throughout Asia to feed their production lines and exports.
Those increased US import duties will affect our exports of rubber to China because Chinese demand for rubber to serve their tire industry will decelerate. Nevertheless, the impact will not be as severe as expected because of China's rising demand for rubber to serve their growing domestic automobile industry, thanks to their government's initiatives to support domestic consumption – including domestic sales of automobiles. Also, the higher US tariffs may induce Chinese tire producers to move their tire production businesses to other countries, including Thailand.
Meanwhile, our tire exports to the USA will become more price competitive, versus China's tire products. Besides, Chinese authorities may launch measures to assist their tire producers and exporters (at the private sector's request). Those measures include increased tax rebates, reduced export tariffs and promoting the use of domestic tires to reduce the impact of the US tariff increase and enhance China's price competitiveness in the US market. Those actions would lessen any benefit that Thai tire exporters could derive from this US-China trade conflict. Our tire exporters will face tougher competition from Chinese tires at home and in other export markets because Chinese tire exporters will be promoting their products in other markets to compensate for lost opportunities in the US market.
The Chinese retaliation on US chicken products (during the investigation) will not benefit or help enhance our chicken export opportunities to China at all because the majority of our chicken exports are in the form of processed chicken meat. Our main export markets for chicken are Japan (accounting for a half of the total export value) followed by England (accounting for 29 percent of the entire export value).

Meanwhile, the majority of US chicken exports shipped to China are chicken paws, and the majority of Thai chicken products exported to China are poultry bones, feathers and other products with an export value of only USD3.3 million per year. During the last three years, although our products received a windfall in tax privileges from the ASEAN-China FTA (since 2005) that helped reduce the relevant tariffs to 5 percent, our export value of poultry products to China (from 2005 to date) has been very low.

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