Southeast Asian nations gain As US China Trade Spat Grows

healthy cash flow trade spatLeslin_Liu / Pixabay

Between Trump, tariffs, and trade spat, 2019 proved to be challenging for international businesses. Tensions between the US and China have been tenuous due to escalating trade actions between the two countries. Since July of 2018, Washington has delivered four rounds of increasing tariffs on more than $360 billion worth of Chinese goods. China has retaliated with their own tariffs ranging from 5% to 25% on American products, worth over $110 billion.

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The consequences of escalating tensions between the two largest economies worldwide were felt throughout the global trade landscape. Small-to-midsize businesses (SMBs) especially were forced to adjust their supply chains to remain profitable in light of new tariffs affecting a diverse range of industries, from soybeans to steel.

The consequences of a trade spat

Trade patterns across Asia were affected by the trade spat between the US and China. According to Veem’s 2019 Global Trend Report, the average size of payments between businesses in the US and Asia decreased by 15% from Q2 to Q4 in 2019. Additionally, the overall volume of payments increased by just 5% during the same time period, well behind the 27% growth seen in 2018.

New rounds of tariffs announced in July of 2019 likely contributed to this decrease as companies sought to avoid paying costly taxes. This shift reflects how businesses must adjust their supply chains in order to protect their bottom lines in light of new tariffs and trade deals.

China's loss was other's gain

While trade patterns within the continent as a whole were shifted by the trade spat, individual nations saw varying effects. In fact, some Asian nations actually increased the total volume of their trade with American businesses.

Southeast Asian nations saw an impressive increase in the total volume of payments to and from American SMBs.

Veem’s 2019 Global Trend Report showed that the total volume of transfers between American and Indian businesses increased by 70% year-over-year, marking a significant gain for the third largest economy in terms of GDP. Other southeast countries including Sri Lanka, Pakistan, and Kazakhstan also saw double digit increases in growth this year.

Similarly, the total volume of payments between the US and southwest Asia increased year-over-year. Payments between American and Fillipino businesses increased by 86%, and payments between the US and Japan increased by 11%.

Not only did the total volume of payments increase in 2019, but the average size of payments between American and Asian businesses also grew. For example, the average payment size between US and Singapore businesses increased by 71% year-over-year in 2019.

Since many products traditionally sourced from China became prohibitively expensive under new tariffs, American small-to-midsize businesses were forced to shift their supply chains. Other Asian countries were able to pick up China’s lost market share, demonstrating that international trade spat have both losers and winners.

Asian economies that rely on low-cost manufacturing to boost their economic output are benefiting from increasing tariffs by China and the US. Low skilled manufacturing hubs such as Bangladesh, Vietnam, Thailand, and Malaysia are all expected by analysts to grow as American firms seek to move their production or supply chains out of China amid rising business costs. With low costs and world-class production facilities, Asia’s manufacturing hubs are an attractive option for global businesses looking to source quality products while avoiding Chinese tariffs.

The rise of Asian economies in 2019 reflects the continent’s growing influence on the global economy as a whole. In terms of purchasing power parity (PPP), Asian economies have become larger than the rest of the world combined for the first time since the 19th century, ushering in what analysts have deemed the Asian century.

American - Chinese relations continue to suffer under tariffs

Despite promise of reconciliation and assuring trade talks, US-China payments continued to suffer in 2019. Specifically in the last month of Q4, Veem’s 2019 Global Trend Report highlighted that the average payment size between US and Chinese businesses decreased by 4%, demonstrating the volatility of global trade patterns.

Trade partnerships between the US and Hong Kong suffered especially. While the new US-China tariffs do not apply to Hong Kong businesses, the administrative region has been caught between the two world powers. Hong Kong, as China’s largest trading partner, often acts as an intermediary for American-Chinese trade. Since that trading corridor has shrunk under heavy tariffs, Hong Kong has felt the effects of the ongoing trade war. The average size of payments between SMBs in Hong Kong and the US shrank by 24% year-over-year in 2019, demonstrating the wide reaching effects of trade spat.

The previous year was marked by uncertainty, tension, and unpredictability. Shifting global trade patterns shaped international markets, with some Asian nations emerging as surprising winners in the US-China trade spat. As we move forward into the new decade, businesses will remain sensitive to changing geopolitical tensions to protect their profitability from rising tariffs.

Veem’s Global Trend Report is based on international payments data from more than 170,000 businesses in 110 countries

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About the Author

Veem
Veem is the global payments network built for business. Trusted by more than 170,000 businesses around the world, Veem provides simple, secure, and trackable payments to over 110 countries. Our mission is to help businesses build and strengthen their relationships with suppliers and partners all over the world. Through seamless integrations with popular business applications, Veem provides a revolutionary payment experience.

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