US-China trade war improves AsPac exports outlook for 2020

MANILA, Philippines — The so-called Phase One trade deal agreed upon by US and China this month bodes well for trade outlook in the Asia Pacific region in 2020 and in the medium term, said IHS Markit. 

In its Week Ahead Economic Review issued over the weekend, the market intelligence firm said the deal – which involved the rollback of some of the tariffs imposed on Chinese goods exported to the US – eases the rising levels of uncertainty that has gripped the regional manufacturing sector.  

“The Phase One trade deal agreed by the US and China on 13th December 2019 creates a more positive outlook for Asia-Pacific exports in 2020, after significant headwinds to the export sectors of many APAC nations throughout 2019,” said IHS Markit in the report 

In 2019, the export sectors of many APAC countries were badly hit by the contagion effects of the US-China trade war. 

This was combined with the downturn in business cycle of the global electronics sector and the impact of the extended manufacturing recession in the Eurozone. 

“The combined negative effects of these headwinds resulted in contracting exports in many APAC economies,” said the report. 

IHS Markit noted that the US-China Phase One trade deal that has been agreed upon still needs to be fine-tuned and signed. Markets are rife with expectations that this will be done in early 2020. 

The US has so far agreed to no longer impose new tariffs due on Dec. 15th for around $160 billion of Chinese exports. 

Furthermore, US tariffs of 15 percent that were in force since September 2019 on $120 billion of Chinese exports will be halved to 7.5 percent. However, US tariffs of 25 percent on $250 billion of Chinese exports will remain in place. 

In return, China has agreed to increase imports from US by around $200 billion over 2020 and 2021 and has also cancelled plans to impose retaliatory tariffs on certain US products that were due to take effect on 15th December. 

Bilateral negotiations on a Phase Two trade deal are also due to commence immediately, with the aim of attaining a much stronger framework for protection of US intellectual property rights in China. 

IHS Markit said the phase one trade deal will boost the Asian manufacturing supply chain the over the medium term as an upturn in Chinese manufacturing to the US will rejuvenate the region’s manufacturing chain for intermediate goods and materials. 

“The US-China Phase One trade deal, once implemented, will be growth positive for the world economy and for APAC growth and exports. An upturn in Chinese manufacturing exports to the US from the Phase One US-China trade deal will also provide a boost to the Asian manufacturing supply  chain for intermediate goods and materials, which will help the export sectors of many Asian economies, given the importance of China as a key export market,” said IHS Markit. 

“Over the past two years, rising levels of uncertainty for companies worldwide due to escalating global trade protectionism and trade wars have had a negative impact on global trade and investment…Reducing these trade policy uncertainties in 2020 should create a more favourable climate for global trade and investment flows over the medium-term outlook… The APAC region would be a notable beneficiary, since China’s export sector has been at the forefront of the trade war, and given the export-driven structure of many East Asian industrial economies,” it added.