Trump, Asia and the global supply chain

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President elect Donald Trump is tearing up previous agreements

US President-elect Donald Trump’s likely pullout from the Trans-Pacific Partnership (TPP) free-trade agreement championed by the outgoing Obama administration will give Thailand some leeway to manage its regional geo-economic position, especially with regard to the country’s attractiveness as a destination for foreign direct investment.

Previously, the TPP was touted by the US as a means to revitalise its influence in Asia-Pacific and contain China’s rapid economic rise in the region.

However, the incoming US administration has a different policy: Trump’s election campaign was centred on the negative consequences of globalisation and free trade, which have impacted the livelihoods of many of his supporters over the past few decades.

Adoption of the TPP by the US and the 11 other signatories would place non-signatory Thailand at a disadvantage, luring away big foreign investors like the Japanese to new investment projects in neighbouring TPP member-countries.

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Prior to the US election, Thailand was under pressure to start negotiating entry to the powerful grouping, which includes Japan, Malaysia, Vietnam, Singapore and other Asia-Pacific countries.

Japanese companies, in particular, were worried Thailand would lose competitive advantages if it did not quickly sign up to the TPP and thereby secure Japanese investment.

With Trump’s surprise election victory, the outlook for Asean countries reversed in favour of the China-led alternative free-trade deal, the Regional Comprehensive Economic Partnership (RCEP), which excludes the US.

At this stage, Thailand will be more comfortable with the RCEP’s advancement while Malaysia and Vietnam will have to rethink, since their advantage as TPP members is no longer secure.

Regarding China, incoming President Trump looks set to pressure Beijing into negotiating new trade agreements by leveraging political issues such as Taiwan’s status.

If China refuses to play this game and the Trump administration goes ahead with threats to slap big import tariffs on Chinese goods, a trade war will loom as Beijing launches counter-measures.

The ensuing battle would have serious ramifications for Thailand, which ships components to China as part of the global supply chain for end-products exported to the US market.

Yet there is also a possible positive consequence, should Trump’s promises to invest substantially in infrastructure and job creation lead to higher US economic growth.

At this stage, it remains unclear how these crucial policies will be funded and implemented to achieve the aim of bringing jobs back to the US from abroad.

Still, a stronger US market would bode well for the global economy and lead to higher demand for imports, including those from Thailand. At present, the American market accounts for over 10 per cent of Thailand’s total exports, practically matching demand from China, which stands at about 10 per cent.

-The Nation