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ASEAN benefits from trade war as China’s new top trade partner

ASEAN - new top China trade partner
ASEAN as China's Alternative Trade Partner As Trade Wars With The US Intensifies

Following Trump’s administration purge on the US’s trade with China from 2018, trade between the two superpowers has been on the decline due to increased tariffs. The Association of Southeast Asian Nations (ASEAN) seems to be one of the beneficiaries of the trade wars as it overtook the US to become China’s second-largest trading partner last year with a trade valued at US$644 billion.

The trends continued for the first quarter of this year as trade between China and ASEAN recorded a 2% increase to US$297.8 billion, translating to 14.7% of the country’s total trade in the period. This growth made ASEAN China’s largest trade partner for the first quarter of the year, surpassing the European Union, which has maintained the position for over a decade.

Apart from the trade wars, the coronavirus pandemic also contributed to the drop in China’s overseas trade for the first quarter of 2020. China’s foreign trade in January and February fell by 11% and a 13% decline for the first quarter as a result of the global trade disruptions caused by the global shutdown that followed. While most of the west was still struggling with lockdowns, China had started easing disease containment by March and ASEAN states like Malaysia and Vietnam were open for trade.

Why Shift to ASEAN?

According to Nikkei Asian Review report, China is improving its trade ties with Southeast Asia as a counter measure to America’s trade wars that have denied them access to US technology. China-based companies are extending their industries to ASEAN to avoid the tariffs imposed on Chinese-products by the US and also to easily access parts needed from the country.

Companies from the developed Asian countries like Japan and South Korea also shifted their production to ASEAN due to attractive policies, improving infrastructure and cheap labour, thus making the region an industrialisation hub. Member states like Thailand, Malaysia and Vietnam are now manufacturers of integrated circuits that end up in the Chinese market. Integrated circuits exports from China to ASEAN increased by 29.1% and the imports by 23.8% in the first half of this year. Most of the integrated circuit’s imports by China in the ASEAN-China trade were microprocessor chips, chip capacitors and analogue-to-digital converters.

An important booster for the ASEAN-China trade is also the favourable policies such as the updated free trade agreement enacted in October 2019. The agreement eased trade between the partners by lowering major trade hurdles like currency, rules of origin, import/export services, foreign investments and many more. According to General Administration of Customs (GAC) spokesman Li Kuiwen, the rise of ASEAN as the leading China trade partner was partly as a result of farm produce trade promoted by the upgraded China-ASEAN Free Trade Area protocol.

The Chinese government has also promoted ASEAN as a China trade partner through the Belt and Road infrastructure projects in the region. The country had a larger percentage of total trade from countries participating in the initiative in the first six months of this year.

What is the future for China-ASEAN trade?

ASEAN and China have been in a close relationship since 2010 through the zero-tariff trade, and it is expected that the two partners will strengthen their trade after the pandemic and become a major player in global growth. Asian member countries are experiencing an influx of foreign companies that buy raw materials from China and make finished goods for the Chinese market trade due to their geographical proximity that lower’s shipping costs.

The China-ASEAN trade partnership will most likely improve when China goes back to its pre-COVID-19 production level due. Semiconductor and electronics manufacturers may also benefit from the demand created by the on-going development of 5G technology.

In addition, trade in Asia could benefit and cushion the effects of the growing protectionist policies if the proposed Regional Comprehensive Economic Partnership (RCEP) Free Trade Agreement were to be signed.

RCEP is expected to be the world’s largest free trade agreement as it will link ASEAN states and China, South Korea, Japan, New Zealand and Australia. The states combined make-up one-third of the global GDP. However, the negotiations had stalled because India, which was also to be included in the free trade area, left the negotiating table.