Asian economies have a lot to lose in a US-China trade war

  • Taiwan, South Korea and Southeast Asian nations are among the largest exporters of "intermediate goods" to China, which then assembles them into finished products to ship to the U.S.
  • If tariffs threatened by U.S. President Donald Trump result in falling Chinese exports to the U.S., there will be knock-on effects for those economies.

Asian economies such as Taiwan, South Korea and Southeast Asia could be badly hit if trade tensions between the U.S. and China heat up further, experts have warned.

Those economies are among the largest exporters of "intermediate goods" to China, which then assembles those pieces into finished products to ship to final destinations such as the U.S., noted Gareth Leather, senior Asia economist at Capital Economics.

Examples of "intermediate goods" include semiconductor chips and screens. Those components are typically manufactured in different locations across Asia before they're sent to China for assembly into products such as mobile phones and computers.

Both China and the U.S. have traded increasing threats to impose tariffs on each other's products. While the final list of affected goods is not yet known, J.P. Morgan analysts wrote in a note that electronic products would likely be included.

That means that if the various tariffs suggested by U.S. President Donald Trump come into effect and result in a fall in Chinese exports to the U.S., there will be knock-on effects for the rest of Asia.

"By its very nature, such products are highly reliant on tightly integrated supply chains. To that extent, this would propagate any trade shock into the region," the J.P. Morgan analysts said.

Such threats are coming at a time when emerging markets, including those in Asia, have been battered by capital outflows and have seen their currencies weaken in the process.

By the end of Tuesday, the Taiwanese dollar was down by around 1.7 percent since the start of the year to 30.172 per U.S. dollar, while the Korean won weakened 4.2 percent to 1,110.89 per U.S. dollar in the same period.

In Southeast Asia, Singapore's currency was down 1.5 percent year-to-date on Tuesday to 1.3567 per U.S. dollar, while the Thai baht saw a smaller dip of 0.6 percent to 32.73 per U.S. dollar during the same time frame.

All those currencies on Tuesday hit their weakest levels in seven months against the greenback — after tensions between the world's two largest economies escalated.

But until the targeted goods are known, it's difficult to quantify the actual impact that Asian economies could see, experts said. In fact, the damage could also be smaller than expected since China is the dominant supplier of many goods that it sells to the U.S., Leather said.

"U.S. consumers would struggle to find sufficient substitutes to replace the goods that they currently buy from China, at least in the short-term. What's more, to the degree that other countries can step in, Asian exporters are well-placed to benefit from any shift in U.S. demand," he said.

"Until we know exactly which goods are targeted, it will be impossible to calculate the impact on the rest of Asia," he added.

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