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Opinion | US tariffs will expose Asia to searing competition from China’s prices
Chinese exports seeking fresh markets bring irresistible scale and prices while central banks have few options to stimulate the problem away
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US President Donald Trump’s pause on most “reciprocal” tariffs is due to expire on August 1. For China, the suspension runs until at least August 12. Exactly what happens after these dates is hard to predict, but one thing is certain: the tariff differential between China and other Asian countries has done little to hurt China so far.
Two factors have driven this. First, the fear of worse tariff news has helped to front-load global trade, with the re-routing of Chinese exports to the United States alive and well. Exports from Southeast Asian countries like Malaysia, Thailand and Vietnam to the US have been particularly strong; exports from China to these countries have also been strong. The conclusion is hard to avoid.
China has also expanded the scale and scope of its export markets, including to Europe.
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The US, of course, seeks a tariff regime with a real impact on China. The question is how it might do so. For Asian investors, the worry should be a worsening long-term outlook, whatever the answer. The US could attempt to impose certificate of origin rules. But implementing these is complex and difficult. An alternative is to apply high tariffs to countries through which Chinese exports are diverted.
Judging by the US-Vietnam agreement, that is exactly what the US intends to do. Vietnamese exports will be subject to a tariff of 20 per cent, but those deemed transshipments will attract 40 per cent. The Vietnam deal was followed by a 19 per cent tariff deal with Indonesia and the Philippines.
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If other deals are on similar terms, it is hard to see them as anything other than negative. On top of that, exactly how a final deal with China might be affected remains unclear, given China’s stated intent to respond if the US makes deals that indirectly target it.
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