Escalating trade tensions between the US and China are to further cloud the trade and economic outlook in Asia, with a predominantly negative effect at a sector level, Moody’s Investors Service said in a report released yesterday.
However, US importers would continue to divert orders away from China, a positive for some economies and sectors in the region, it said.
“The US-China trade dispute has significantly weakened the bilateral trade flows, with spillover effects already spreading across Asia,” Moody’s managing director and chief credit officer for the Asia-Pacific region Michael Taylor said in the report.
The spillovers are mainly concentrated on exports of intermediate inputs and capital goods to China through supply chains, Taylor said, adding that computers and electronics, and to a lesser extent machinery, are the most exposed sectors.
However, a rising level of exports from some other Asian economies to the US would remain a mitigating factor, with US importers diverting some orders for electronic components away from China to Taiwan and South Korea, and to Vietnam and Malaysia for semiconductor devices, he said.
Some Asian exporters have also gained market share in the US in consumer goods such as bicycles, handbags, furniture, clothing and footwear, Taylor said.
If US importers gradually seek alternative sources of consumer goods from the rest of Asia to circumvent increased tariffs on Chinese imports the substitution effect would be credit positive for Asian exporters in these sectors, said Moody’s analyst George Xu (徐晶), a coauthor of the report.
However, if the additional US tariffs trigger a gradual rerouting by Chinese consumer goods exporters to other Asian markets, domestic producers in those markets with greater local exposure and more replaceable products would likely face increased competition, Xu said.
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