ASEAN, Thailand Win in Global Trade Shifts
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ASEAN, Thailand Win in Global Trade Shifts

Southeast Asia and Thailand emerge as strategic alternatives in the shifting trade dynamics between China and the West, according to BCG.

Southeast Asia stands to benefit from slowing trade between China and the West and geopolitical tensions are favourable for Asean which is emerging as an important alternative to China in trade and investment.

Thailand, specifically, is in a unique position to transform itself into a strategic hub for trade and investment in this dynamic region in the new global trade normal.

This is part of insights highlighted in comprehensive research prepared by Boston Consulting Group (BCG), a leading global management consulting firm that has an office in Bangkok, Thailand. 

"The geopolitical movements are favourable for Asean which is a relatively neutral cluster of countries, having sound relationships and trade ties with many different powers around the world and also has strong trade relationships with many powers around the world,” said Aparna Bharadwaj, global leader of BCG’s global advantage practice.

"Asean is emerging as one of the largest beneficiaries of China-The West geopolitical tensions. The West is seeking to reduce concentration (with China), she said in an interview with the Bangkok Post in Bangkok.

“Against that backdrop, Asean's cumulative import-export trade is forecast to grow $1.2 trillion in the next ten years due to the region’s emergence as a key destination for companies seeking to decrease their dependence on China for manufacturing by adopting a ‘China + 1’ diversification strategy,” Marc Gilbert, managing director and senior partner of BCG, noted.

“Asean is an attractive China alternative because of its young and dynamic population, economic diversity, and generally neutral stance among geopolitical blocs,” he added.

“Furthermore, China's cost position has increased over time while Southeast Asia's position in that regard has becoming more favourable, making it (Asean) an attractive place to shift manufacturing to."

Mr Gilbert said BCG believes Thailand's total trade will grow by an estimated 30% over the next decade to reach approximately $600 billion.

Thailand also has potential to become a regional hub for highly-skilled workers, especially given its positive track record over the past 12 months in attracting talent from India, China and Myanmar.

Meanwhile, at current trajectory, BCG projects Asean's digital economy could reach $2 trillion by 2030. 

In fact, the ‘Age of Asia’ is in many ways the age of ASEAN, with the region’s strong economic growth, robust youth population, and its emergence as a key destination for global companies, BCG said

Fall-off in US-China trade

Persistent trade tensions and growing trade barriers are continuing to impact trade between China and the West.

The projected fall-off in US-China trade is one of the most significant developments in the updated global trade map, with 2032 trade value forecast to fall $197 billion from its 2022 level. 

This is more than three times the $63 billion contraction forecast one year ago in a similar BCG analysis.

The change is due to China’s slowing GDP growth in 2022, combined with other factors. China’s trade with the EU will continue to grow, but more slowly than the global average.

Slower global trade

World trade in goods is forecast to grow at 2.8% per year, on average, through 2032, compared with an estimated 3.1% growth rate for global GDP in the same period, according to a new BCG analysis.  

India Ignition

Similar to Asean, India is benefitting from a low-cost structure and capable workforce to rise as a major domestic market and “China + 1” destination for global manufacturing.

India’s large market and particular strengths in industries such as chemicals, consumer electronics, and pharmaceuticals are attractive for companies seeking to diversify their global footprint.

Expanding trade connectivity, as evidenced by new and under-negotiation trade agreements, are helping to increase India’s projected external trade in the next ten years by $393 billion, including $180 billion with the US and EU and $124 billion with China.

China moves goods elsewhere

As the world’s leading exporter of manufactured goods, China itself is resilient. 

BCG said trade that stops flowing between China and the West will simply move elsewhere.

Notable beneficiaries of reduced US concentration in China will be the Asean countries and India as many companies move manufacturing to these economies, both to reduce global supply chain risks and to access new markets.

As a result, trade between Asean and China would grow a remarkable $616 billion in the coming decade—and trade between Asean and both the US and Japan will increase by more than $200 billion.

India is forecast to achieve 6.3% average annual trade growth, partly because of this rebalancing of China trade.

Stronghold North America

The United States, Canada, and Mexico will benefit from the US Mexico Canada Agreement (USMCA), as US trade with its neighbours is forecasting to grow by $466 billion in the coming decade. 

Faced with a combination of economic pressure and national security concerns, the Biden administration has adopted a new focus on industrial policies with a more protectionist bent, such as the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA).

The result is a more influential regional manufacturing footprint with direct investment into strategic industries.

Russia Trade Divergence

The break in Russia’s trade with the EU and the US caused by the war in Ukraine and the resulting sanctions and reduced European dependence on Russian energy will influence Russia’s trading profile at least as long as the stalemate in Ukraine continues.

These conditions have not led to the elimination of Russian trade, but rather its redirection elsewhere. For example, much of the trade with the EU has shifted to Russia’s fellow BRICs countries: Brazil, China, India, and South Africa.

While Russia’s trade with the EU in 2032 will fall by $222 billion, compared with 2022, its trade with China and India will grow by $134 billion and $26 billion, respectively.

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