DISRUPTION is impacting Asia ​as the trade war between the United States and China is affecting countries on a global scale.

But there are winners, as reported by The Economist Intelligence Unit (The EIU).

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Below is the the organization’s message it sent to SDN — Scitech and Digital News on Thursday, November 1.

  • The US-China trade war will encourage multinational companies to diversify their regional supply chains, in order to insulate themselves from the impact of the US tariffs.
  • The automotive, ready-made garment and technology sectors will be substantially impacted by the trade war: all have highly integrated supply chains built out of China. However, this disruption will present opportunities for China’s neighbours.
  • Southeast Asian economies are likely to see the biggest benefits, with Vietnam, Thailand, Malaysia and Bangladesh emerging as particular winners from the trade war.
  • While Taiwan, Japan, South Korea and Singapore will see modest disruption, the trade war will not be catastrophic for these economies.
  • Supply chain shifts will take time, as companies adjust their internal investment strategies, find local partners and navigate local regulatory requirements. In most cases, it will take at least two to three years for the full benefits of the trade war to be felt by economies in places like Southeast Asia.

Not everything is bad

A new report released today by The Economist Intelligence Unit (The EIU) finds that while the growing trade conflict between the US and China threatens to disrupt global economic growth, there are a number of countries that stand to benefit from the resulting supply chain shifts in Asia, particularly in the automotive, technology and ready-made garments industries.

These benefits will be felt primarily among the member countries of the Association of Southeast Asian Nations (ASEAN).

(ASEAN is composed of Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos,  Malaysia, Philippines, Singapore, Thailand, and Vietnam.)

Nick Marro, an analyst with The Economist Intelligence Unit, took note of the situation.

“Multinational companies have already been shifting their export-manufacturing operations away from China and into Southeast Asia for much of the past decade. The trade war will accelerate that trend,” he said.

Malaysia and Vietnam, for example, are already home to a number of major multinational electronics manufacturing companies, and will be able to leverage their improving infrastructure and relatively robust business environments to attract new investment.

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There will be winners, too, in South Asia, such as Bangladesh whose existing strengths in garment-manufacturing will position it well to take market share from China. By contrast, Japan, Singapore, South Korea and Taiwan remain more heavily reliant on trade links with the Chinese market, so (they) will be more negatively affected by the disruption that it will experience.

The impact of changes stemming from the trade war will not be felt overnight.

“It will take time for multinationals to draft new global and regional strategies, find new business partners, navigate different regulatory systems and secure the required licenses and permits to expand production in new markets. As a result, the negative, disruptive effects of the trade war will dominate in the short term. The full benefits for Asia’s winners are unlikely to emerge until 2020 at the earliest,” said Marro.

Impact on ICT sector

Meanwhile, here are the key findings in the information and communications technology (ICT) sector also from the The EIU report — Creative disruption — Asia’s winners in the US-China trade war.

  • The ICT industry has been a particular focus for the US government as it has moved to increase tariffs on imports from China.
  • Vietnam and Malaysia will benefit the most from the US-China trade war, particularly in low-end manufacturing of ICT products, such as intermediate components and manufacturing of consumer goods like mobile phones and laptops.
  • Positive business environment considerations—such as the existence of a clear and stable system for corporate law in Malaysia, and strong investment promotion policies in Vietnam through that country’s new special economic zones—will add to the two countries’ attractiveness for firms considering them as potential sites for ICT investments.
  • India, Indonesia and Thailand should also be able to secure some benefits from the relocation of export-oriented ICT manufacturing. However, this type of export production is more limited in these markets than it is in Vietnam and Malaysia at present, meaning that international trade links in these markets may be underdeveloped. Of the three, Thailand has perhaps the most potential.
  • The Philippines will see mild disruption stemming from the trade war, owing to the importance of the Chinese market for shipments of ICT intermediate components from that economy.
  • Japan, Singapore, South Korea and Taiwan are set to experience even greater disruption from the trade war, particularly in the short term, owing to the importance of the Chinese market to exporters in those economies.
  • High taxes, limited land and expensive labour will prevent significant re-shoring of ICT manufacturing operations from China back to these four markets (Japan, Singapore, South Korea and Taiwan). However, the impact of the trade war on exports from South Korea, Japan, Taiwan and Singapore will be limited by the fact that all four tend to produce high-end ICT components that are not easily replaceable through import substitution. Thus, although the Chinese operations of companies from these economies may be disrupted, their domestic exports will be less vulnerable. (The EIU)