ASSESSMENTS

Southeast Asia Is on the Front Lines of the U.S.-China Trade War

Sep 20, 2019 | 18:39 GMT

An aerial view of harbored shipping cargo.

Southeast Asian countries stand the most to gain, and lose, from the U.S.-China trade war. But while some countries have benefited more than others (namely, Vietnam), all are facing challenges that risk cooling their growing economies.

(Shutterstock)

Highlights

Southeast Asia’s export-oriented economies are having to adapt to slackening growth fueled by the U.S.-China trade war, as well as China's own economic slowdown and declines in global demand.
Vietnam has so far largely benefited from the influx of companies relocating from China, but still faces risks due to its deep integration with Beijing's supply chains. Singapore, meanwhile, is facing major economic setbacks but can leverage its wealth to manage them.
Given its recent political transition, Thailand is particularly vulnerable to any additional economic strain. Indonesia's $7 billion current account deficit will limit its ability to weather the storm as well.
To ease the impact of global uncertainty, most Southeast Asian countries will take action to stabilize their volatile currencies, and deploy incentives to attract foreign investment and manufacturers leaving China.

The U.S.-China trade war has recently shown some signs of a truce that could sustain talks. But this has brought little refuge for global markets, given that a snap decision by the White House could swing U.S.-China tensions back into high gear. Because of their proximity to and deep integration with regional supply chains (and with China in particular), Southeast Asian countries are among the best-positioned to benefit from the manufacturers leaving China to escape U.S. tariffs. Indeed, Vietnam has emerged so far as the clear winner on this front, though even it isn't immune to the world's fraught economic outlook. The strengthening U.S. dollar, for one, has roiled Southeast Asian currencies, while declines in global demand have sapped Southeast Asia's vital export revenue. The global headwinds also pose a challenge to the region's political orders built on delivering rising prosperity -- forcing each country to balance benefits with risks to maintain its...

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