Since the trade war erupted between China and the United States, much focus has been on the impact on both countries. As China and the United States dominate the world’s economy, being the top two biggest national economies in terms of size, the impact of U.S.-China trade friction will be far greater than what is seen in each individual country. The negative effects of China’s economic slowdown and the imposition of additional tariffs have spilled over to neighboring countries and regions, among which the Four Asian Tigers — the developed economies of Taiwan, Hong Kong, Singapore, and South Korea — are the most affected.
According to a recent Reuters report, Taiwan’s export orders fell 4.5 percent year-on-year to $38.5 billion in June, the eighth consecutive month of contraction. The global economy is weakening as a result of the U.S.-China trade dispute and customers are more conservative when placing orders. In particular, machinery orders fell the most, down 22.3 percent, while electronics orders fell 4.3 percent. In terms of export destinations, U.S. orders in June have increased by 6.8 percent year-on-year, but demand in other major markets has deteriorated. Data shows that orders from mainland China fell 14.6 percent in July after falling 13.9 percent in June, while orders from European and Japanese buyers fell 5.3 percent and 7.9 percent respectively. Mainland China has contributed to the largest decline in orders, showing that the economic and trade situation there has also slowed. The decline in demand has seriously impacted Taiwan. When customers (in this case, the United States) stop importing from mainland China, the impact of the slowdown in demand will be transmitted all the way to the parties upstream. As one of the Four Asian Tigers, Taiwan with its strong electronic manufacturing ability will inevitably face the impact of slowing demand. In light of this, the Standard Chartered Bank has recently revised its forecast for Taiwan’s GDP growth this year down to 2.1 percent from 2.4 percent at the beginning of the year.
Like Taiwan, Hong Kong is highly dependent on China; one can even say that their economic fortunes are closely tied to China’s economy. For Taiwan, data in April this year showed that the country’s exports to the mainland and Hong Kong accounted for 37 percent of its total exports, compared with 13.4 percent to the United States. Hong Kong also showed a similar situation, but due to having a different industrial structure from Taiwan, the impact on Hong Kong is evenly distributed among investment, real estate, trade, and other sectors. For example, Debenham Thouard Zadelhoff (DTZ) recently pointed out that capital from mainland China continues to be tight due to the trade war. Since the third quarter of last year, China’s share of large-value properties having turnover of more than HK$1 billion has been zero. Jones Lang LaSalle Incorporated (JLL) also noted that uncertainty over the trade war between China and the United States has slowed Chinese companies’ expansion activities in Hong Kong. In terms of trade, Hong Kong’s Standard Chartered Bank said in a recent report that as long as existing punitive tariffs remain in place, Hong Kong’s trade volume as a re-export center will decline. The bank also cut its Hong Kong’s GDP growth forecast for this year from 2.2 percent to 1.4 percent. In terms of financial investment, the decline is also reflected in the number of mergers and acquisitions (M&A).
The South China Morning Post pointed out that the total transaction volume of M&A in Hong Kong in the first half of the year was $45.8 billion, a year-on-year contraction of 14 percent. This is because a series of effects affected the sentiment of enterprises with regards to M&A, and most are adopting a wait-and-see attitude to determine how long the U.S.-China trade war will last. Many shelving their relevant financing plans in the meantime. Due to the close economic and trade relations between Hong Kong and the mainland, under the impact of the U.S.-China trade war, corporate investment, entrepot trade, and overseas expansion of the mainland are becoming more cautious, and this has affected Hong Kong as well.
The situations of the other two tigers, Singapore and South Korea, appear gloomy as well. In general, Singapore and South Korea are both regarded as barometers of Asia-Pacific and global trade. Although they are less dependent on China, they are still affected by the U.S.-China trade war.
According to recent data, Singapore’s GDP in the second quarter increased by only 0.1 percent from the same period of the previous year, far below the 1.1 percent forecast quoted in a Reuters poll. In addition, the country’s non-oil products domestic exports fell 15.9 percent year-on-year decline in May and 10 percent in April. Although Singapore may be able to benefit from transfer effects of the U.S.-China trade war, the British economic research consultancy Capital Economics believes that this will be offset by the downsides of U.S.-China trade war coupled with the slowdown in global demand. Singapore’s manufacturing industry fell by 3.8 percent year-on-year in the second quarter of 2019, and declined 6.0 percent from the first quarter. This is the third consecutive quarter in which Singapore’s manufacturing industry has contracted. At the same time, the growth rate of the construction industry and service industry in Singapore has also slowed down. In this quarter, the year-on-year growth of the construction industry in Singapore grew 2.2 percent, while the service industry’s year-on-year growth rate stabilized at 1.2 percent. In addition, Singapore’s non-oil exports in June fell by 17.3 percent year-on-year, declining for the fourth consecutive month, making it the largest decline in six years. Among these, electronics exports fell by 31.9 percent. Compared with May, non-oil exports in June fell by 7.6 percent. On July 16, the International Monetary Fund (IMF) announced that it will reduce its economic growth forecast for Singapore in 2019 from the previous 2.3 percent level to 2 percent, taking into account the impact of global trade tensions on exports related to the country.
Compared with Singapore, the situation in South Korea is even more worrying. According to the latest data, total exports of information and communication technology (ICT) products, which are the main export industries of South Korea, decreased by 22.4 percent year-on-year in June, which in turn marked the eighth consecutive month of year-on-year decline (since November last year). Meanwhile, on July 18 the Bank of Korea cut the seven-day repurchase rate to 1.5 percent from 1.75 percent. This is the first time in three years that South Korea cut the benchmark rate in order to cope with the precarious economic situation it is facing. South Korea’s economy and exports have declined as well. In addition to the decline in demand for electronic chips due to the U.S.-China trade war, South Korean daily newspaper Chosun Ilbo reported on June 10 that South Korean companies themselves are presently having a hard time coping with the U.S.-China trade war.
Harry Harris, the U.S. ambassador to South Korea, has stated that Korean telecom companies should carefully select “reliable” 5G network equipment suppliers. This is considered to be a direct request to South Korea not to use Huawei’s 5G equipment. Meanwhile, South Korea’s KBS TV station said that Korean companies have been “interviewed” by the Chinese government in China. According to the report, the Chinese government contacted senior Korean technology companies such as Samsung and SK Hynix on June 4 and 5, warning them not to comply with the U.S. government’s ban on Huawei. The friction between the U.S. and China not only brings about a slowdown in South Korean exports, but also made it necessary for companies to choose sides, either siding with China or the United States. This means that the companies have to abandon doing business with the one side should they choose to side with the other. In addition, South Korea is still caught up in another trade battle with Japan over semiconductor materials. This is bad news for South Korea, whose exports are dominated by high-tech electronics exports.
Judging from the above-mentioned performances of the Four Asian Tigers’ economies, trade frictions are having a systemic impact on the global economy and trade. The Four Asian Tigers that previously benefited from globalization have now become victims in the present global trade situation and a slowdown in demand.
The negative impact of the U.S.-China trade war has spilled over to the Four Asian Tigers. Although these four are not exactly the same in terms of industrial structure and export distribution, as open economies they cannot be completely immune to the effects of the U.S.-China tariff increase and the slowdown of global demand.
Founder of Anbound Think Tank in 1993, Chen Gong is now Anbound Chief Researcher.
Song Junjie, graduated from Tsinghua University with a master’s degree in economics and is an assistant researcher at Anbound Consulting.