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21 Jul 2020

Econ Digest

Hong Kong, a cause to reignite US-China trade war

     The recent revocation of Hong Kong's special status by the United States on July 15, 2020, serves to reignite its ongoing trade feud with China, ahead of the 2020 United States presidential election. KResearch views that the United States has persistently exploited China's sensitive issues, utilizing them as a tool to pressure China in this year's 'Phase 1' trade deal. The time constraint presented by the imminent election further complicates the situation, as this trade war is expected to be protracted, with a 'Phase 2' trade deal unlikely to materialize. Even if a new leader emerges from the upcoming US election, the geopolitical race between the United States and China is set to continue and is not likely to quell the raging trade conflict.

     Over the course of the past two years that have been dominated by the US-China trade war, the US has been unable to reduce its trade deficit with China to the targeted level. Shifting the focus to Thailand, Thai export businesses incurred a net loss of USD 1.1 billion in related products. While certain products benefited as substitutes for products from the opposing camp, both directly and indirectly – the volume is still not great enough to counterbalance the major impacts that have caused exports to decline in China's supply chain. This issue is further compounded by Thailand losing its foothold in the markets of neighboring countries

      KResearch expects that the consequences of the trade feud will begin to lessen in intensity once the 'Phase 1' US-China trade deal is clinched. Should the United States forge ahead in making Hong Kong a new focal point in pressuring China during this commercial conflict, Thai exports would become exposed to even more risks. The impacts on trade at present are primarily the result of the COVID-19 outbreak, which has the potential to resurface in a second wave during winter – putting international trade in greater jeopardy. For these reasons, Thai exports to the US for 2020 are expected to shrink by 2.7 percent, with an estimated export value of USD 30.5 billion. Although Thai exports to China are expected to make a recovery before those that target other markets, production would not yet reach full capacity; thereby limiting the growth of exports to the mainland to 3.2 percent, with an export value of USD 30.1 billion.

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