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As US-China trade war escalates, South Korea warns on impact

Hong Kong, South Korea and Japan most vulnerable to US-Sino trade war- OCBC

Gulf News

Seoul, Beijing: The US-China trade war could harm South Korean exports of high-tech components, Seoul warned on Thursday, while Beijing cut its forecast for soybean imports and the Chinese currency fell as worries about fallout from the simmering conflict grew.

On Wednesday, Beijing warned it would hit back after the Trump administration raised the stakes in their trade dispute, threatening 10 per cent tariffs on $200 billion (Dh734 billion) of Chinese goods, a swift escalation after an earlier round of tariffs took effect only on Friday.

While Chinese shares regained heavy losses from the previous session, with the Shanghai Composite Index rising 2.2 per cent, the yuan fell against the dollar following the central bank’s weakest daily fixing in nearly a year and after Washington’s fresh tariff threats knocked the currency lower.

China had yet to say how it will respond after the fresh round of US tariffs would bring to $250 billion the total of Chinese goods facing added duties, once the latest list of duties take effect after a two-month comment period.

China only imported about $130 billion of US goods last year, meaning that to retaliate it will have to increase the size of the tariffs it imposes or resort to what it calls “qualitative” measures, which US businesses fear could mean reprisals against their China operations.

A survey released by the American Chamber of Commerce in Shanghai found that most US businesses operating in China oppose the use of tariffs in retaliation for the challenges they face, from an uneven playing field to poor protection of intellectual property rights.

The tariffs initiated by US President Donald Trump have also drawn criticism from lawmakers in his own Republican Party, as well as from US trade groups worried about higher costs for businesses and consumers.

On Thursday, Beijing cut its forecast for imports of soybeans — the most-valuable crop it buys from the United States — after it imposed a 25 per cent retaliatory tariff on an array of agricultural goods, which could inflict pain in Trump-supporting states such as Iowa, Kansas and Texas.

China warned that higher prices due to trade conflicts with the United States would curb demand as farmers switch to alternatives for animal feed.

South Korea, Japan vulnerable

Concerns about the knock-on effect of the trade war spread on Thursday, with South Korea, Asia’s fourth-largest economy, warning that components and materials — “intermediate goods” — used in home appliances, computers and communications devices could be caught in the crossfire.

South Korea’s trade ministry said the trade war could be “prolonged and spread,” adding that it would prepare responses and scenarios to cope with the economic impact of the trade row.

Its finance minister also warned that the dispute would present “serious downward risks” to South Korea’s export-reliant economy if the impact spread globally.

“While the trade conflict between the US and China has had a limited impact so far, we can’t rule out the possibility of a slowdown in the Chinese economy and a contraction in world trade should conflict grow and spread into the global market,” Finance Minister Kim Dong-yeon said at a government meeting.

OCBC Bank in Singapore estimated that in a scenario where US tariffs apply to $250 billion worth of Chinese goods, South Korea’s GDP growth could be reduced by 0.3 percentage point while Japan’s growth could be cut by 0.2 percentage point.

“China’s closest neighbours, namely Japan, Korea and Hong Kong, are most vulnerable to a US-Sino trade war because they export mostly intermediate goods to China,” OCBC said in a note.

ZTE shares surge 25% as US sanctions lift moves step closer

Shares in Chinese telecoms equipment maker ZTE surged more than 25 per cent in Hong Kong on Thursday after the company moved a step closer to having a painful US purchase ban lifted.

The firm had been forced to halt operations and was on the verge of collapse after Washington announced a seven-year ban on US companies selling it crucial parts owing to its handling of a sanctions violation.

However, as a favour to Chinese President Xi Jinping, US President Donald Trump ordered the Commerce Department to ease the penalties and replace it with an order to pay a $1 billion fine and put $400 million in an escrow account to cover any future penalties for violations.

It was also ordered to replace its board of directors and retain outside monitors.

— AFP

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