ASIAN countries can benefit from the trade war between the US and China through short-term import substitution programs under which companies will seek to replace expensive imports with items sourced from other countries, Nomura said in a report.
They can also benefit through production relocation where multinationals are prompted to divert some of their production to factories in other countries, Nomura said, citing the results of its research, where it found that some parties could end up “relative winners” despite the trade war.
“In the short-term, if the US and China charge higher tariffs on each other’s imports, then companies will have an incentive to replace these expensive imports with local production sources or substitute from other countries,” it said.
“Meanwhile, a prolonged US-Sino trade conflict, in the medium term, would encourage MNCs (multinationals) to start diverting some of their production to factories in other countries to escape tariffs, or even relocating whole plants if the trade war sustains,” it added.
Nomura said the results of its study of 13 Asian countries show that Malaysia stands out as the biggest beneficiary of import substitution, followed by Japan, Pakistan, Thailand and the Philippines. Bangladesh, India and South Korea came out as the least likely to gain on a relative basis.
“Breaking down the results we find that many ASEAN (Association of Southeast Asian) countries are best placed to benefit from the US imposing tariffs on China; while Pakistan, Japan and Malaysia could benefit from China imposing tariffs on the US,” it said.
Nomura said its looked into the specific products that are likely to benefit in each country. For instance, the biggest benefit to Malaysia is likely to come from electronic integrated circuits, liquefied natural gas and communication apparatus.
“For others, there is usually one leading product: ‘vehicles with only spark-ignition internal combustion reciprocating piston engines’ in Japan, cotton yarn in Pakistan, ‘units of automatic data processing’ in Thailand and ‘electronic integrated circuits’ in the Philippines,” it said.
On production relocation, Vietnam is the clear standout if companies were to divert production and foreign direct investment (FDI) from China, Nomura said. It is followed by Malaysia, Singapore and India.
“Interestingly, while Pakistan is one of the biggest beneficiaries from import substitution, it benefits least from the diversion of production and FDI,” it said.
Nomura also enumerated the top 15 products across each of the 13 Asian countries that could benefit from import substitution in a US-Sino trade war and their importance for the country.
For the Philippines, this list is topped by electronic integrated circuits; processors and controllers, whether combined with memories, converters, logic circuits, amplifiers, clock and timing circuits, or other circuits. — Victor V. Saulon
