Thailand girds itself for Trump trade war

Thailand girds itself for Trump trade war

While US tariffs on imported steel may not hit the local market directly, these measures could be just the opening salvo in the 'America First' battle.

A long-standing ally of the US, Thailand has seen its steel industry rattled by a looming trade war as President Donald Trump's rhetoric on slapping hefty tariffs on steel imports has morphed into reality.

As an attempt to comply with his campaign pledge to "Make America Great Again", Mr Trump recently approved protectionist trade measures on the grounds that the US had suffered from "unfair trade" and that the tariffs would boost the US industry.

The imposed import duties -- 25% on steel and 10% on aluminium -- will go into effect within two weeks, though Canada and Mexico are exempt as negotiations continue over the North American Free Trade Agreement.

Many countries have voiced opposition to Mr Trump's protectionist policy, with China describing the move as a "serious attack" on the international trade system.

On the domestic front, steel is a major raw material that is widely used in downstream industries, such as automotive and electrical appliances, as well as in the electronics, petrochemical, machinery and packaging sectors.

Thailand is not a major steel exporter to the US, thus mitigating any direct impact from Mr Trump's policy.

But indirect effects are looming on the horizon, as the country could be used for dumping from major steel exporting countries where trade barriers are lacking.

POSSIBLE DUMPING GROUND

According to the Iron and Steel Institute of Thailand, steel production in Thailand is dominated by rolling mills, many of which rely heavily on imports of semi-finished and finished steel products for their manufacturing inputs.

Thailand is the world's fifth-largest steel importer. Year-to-date, Thailand has imported 3.7 million metric tonnes of steel, down 6% year-on-year from 3.9 million metric tonnes in 2016. Thailand's imports represented 5% of all steel imported globally in 2016.

Buntoon Wongseelachote, vice-chairman for foreign trade negotiations at the Thai Chamber of Commerce, said the US trade measures will affect Thailand because Thai export-oriented products are part of a supply chain in making finished products in the US and China.

"Lower exports to the US market are inevitable if the US administration introduces more and more [protectionist] trade measures," he said. "We can look to offset the impact by exploring new markets and revving up talks on free-trade agreements and strategic partnerships with other countries."

Mr Buntoon said the global trade landscape has completely changed as Mr Trump fixates more on potential domestic carrots than on any international political gains or soft-power benefits obtained through global leadership, vowing to tackle a massive annual trade deficit of US$500 billion (15.7 trillion baht).

In the past, the US was willing to shoulder trade deficits with almost all countries for international political gains as it sought to become the global leader.

Mr Buntoon said Mr Trump's decision to impose global tariffs of 25% for steel and 10% for aluminium is unlikely to greatly affect Thai exports because the country is not a major steel exporter to the US.

But he warned that Thailand will be hit harder if the US slaps higher tariffs on electrical appliances from China, with which the US has suffered a hefty trade deficit as high as $200 billion, because Thailand is a major exporter of electrical appliance parts to the world's second-largest economy.

According to a study by the Iron and Steel Institute, Thailand is estimated to lose 10.47 billion baht or 383,496 tonnes of steel exports (notably for steel pipe, cold-rolled steel and galvanised steel sheet) as a direct consequence of the US tariffs.

In terms of indirect impacts, the institute said Thailand is likely to encounter a flood of foreign steel as the US tariffs redirect 27.03 million tonnes into the Asean market.

Steel-making countries expected to rev up exports to Thailand include South Korea, Turkey, Japan, Taiwan, China, Russia, Vietnam and India, which collectively account for 40% of steel exports to the US market.

Products likely to be dumped on the Thai market include steel rod, tin- and chromium-coated steel sheet, galvanised steel sheet and tin plate, all of which have no trade barriers here.

Wanchai Varavithya, deputy director-general of the Commerce Ministry's Foreign Trade Department, said the government may opt to apply for safeguard tariffs, anti-dumping measures or countervailing measures to safeguard against a flood of foreign steel.

Mr Wanchai said the department's preliminary study found that the US tariffs would lower Thai steel exports to the US and possibly trigger a torrent of foreign steel flowing into Thailand from countries unable to access the US market.

"The ministry is closely monitoring the US steel tariffs and preparing preventive measures to offset the impact," Mr Wanchai said. "The guidelines we may apply to protect our domestic products and prevent a flood of foreign steel include safeguard measures and anti-dumping or countervailing tariffs."

He said the process requires private firms that have been affected by foreign steel dumping to file complaints with the Commerce Ministry, which will investigate by taking into account losses, market share, import amount and impact on domestic employment.

The investigation process takes about one year before any punitive measures can be determined.

Demand for steel in the construction industry is on the rise, mainly due to a surge in state infrastructure projects. PATTARAPONG CHATPATTARASILL

WAIT-AND-SEE MODE

Fears of substantial indirect effects are growing, as witnessed by how Commerce Minister Sontirat Sontijirawong has said the ministry will call meetings with private firms that are prone to bearing the brunt of foreign trade measures, particularly from the US.

"The government has insisted on choosing the most appropriate measures to protect domestic industries and cope with foreign trade measures," Mr Sontirat said. "Nonetheless, the ministry has signalled throughout the year about the growing and intensifying trend of protectionist trade measures. The Thai private sector itself needs to be fully aware of such threats and speed up making adjustments and building up their internal strengths, as it is very tough to prohibit or prevent other countries from applying protectionist trade measures."

Mr Sontirat urged Thai businesses to shift their focus to other potential markets such as Asean, Japan, India, China and Russia, in lieu of relying heavily on the US market.

The US is Thailand's third-largest source of imports, after China and Japan.

Thailand was the US's 25th-largest export market in 2016, while the world's largest economy maintained an $18.9-billion trade deficit with Thailand, considered the US's 11th largest, according to the US Trade Representative.

Chen Namchaisiri, chairman of the Federation of Thai Industries, said the FTI is adopting a wait-and-see stance to assess the effects of Mr Trump's steel tariff policy, which has sparked fears of a global trade war.

"The FTI can't evaluate the US president's policy because we are waiting for a long-term assessment of its impacts," Mr Chen said. "As far as we know, the US's policy is intended to hit China, which has a powerful economy, since China is a big steel exporter to the US."

Mr Trump's policy is expected to take a toll on Thai steel producers, he said, but the impact is expected to be minimal because Thailand is not a major steel exporter to the US.

The FTI is not concerned about the direct impact on Thailand's steel exports to the US, including hot-rolled and cold-rolled steel, which average 383,496 tonnes a year with a value of 10 billion baht.

NOT JUST A TRADE WAR

While the steel tariffs are seen as igniting a global trade war, some analysts say Mr Trump may have other measures up his sleeve.

Sompop Manarungsan, president of the Panyapiwat Institute of Management, said the US president is kicking up not just a trade war, but also currency and tax wars, as part of his "America First" campaign.

Some of Mr Trump's America First policies are part of efforts to weaken the dollar, including deep corporate tax cuts to entice US businesses to shift their overseas production bases back home.

"Those US measures come as no surprise, as Mr Trump already declared [such a policy] during his election campaign," Mr Sompop said. "But what we are afraid of is the possibility of a full-blown trade war, as the US has now started applying multilateral trade measures such as safeguard tariffs on imported solar cells and residential washing machines, as well as the latest invocation of Section 232 of the Trade Expansion Act of 1962, which grants the US government the power to explore whether imports undercut national security on two products: steel and aluminium. The move is going to affect numerous parties."

Mr Sompop said the US in the past has applied trade measures, but only on a bilateral basis.

The US has previously accused China of intellectual property theft and subsequently carried out anti-dumping investigations into Chinese imports.

"The trade measures are quick and easy tools to protect domestic products," Mr Sompop said. "Any plans to file complaints with the World Trade Organization (WTO) to help settle trade disputes are meaningless, as Mr Trump has exercised his power according to Section 232, covering national security. Even worse, Mr Trump himself earlier declared that the US was ready to withdraw from the WTO."

Since 2009, US policymakers have passed 1,297 economic or trade measures deemed to be harmful to global trade, according to research by law firm Gowling WLG.

Late last month, the president told a group of 39 state governors gathered at the White House that his administration was focused on securing "fair and reciprocal trade deals" as a result of "not being treated fairly" in the past.

Mr Trump earlier had called the WTO, the global regulator for trade between countries, a "catastrophe". He said the organisation made it "impossible for us [the US] to do good business".

Mr Sompop said the Commerce Ministry's 8% export growth target this year will be hard to achieve given the US trade measures. He recommended Thailand evaluate the US policies and go from there.

"It would be great and helpful if the Thai government knew some powerful lobbyists, as insider information is instrumental for Thailand to direct its trade policies," he said. "I don't believe that Thai businesses are ready and well-prepared for any trade measures, as they are already crying buckets just from the first [currency] war right now, so don't mention the two upcoming wars [on trade and tax].

"More importantly, Mr Trump does not care about global citizens. What he cares the most about are benefits for the American people, as he sees the US as the game-setter while other countries are the game-breakers."

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