Trade war? S'pore companies urged to look to S-E Asia

As President Donald Trump sets his sights on the United States' trade deficit with China, Singapore companies should look to South-east Asia to prepare for any possible fallout.

This is the assessment of trade agency International Enterprise Singapore's group centre director for South-east Asia, Mr Ivan Tan, as he discussed the possible impact of frosty US-China relations on South-east Asia.

He did not think Mr Trump would necessarily carry through his campaign rhetoric of a 45 per cent tax on Chinese imports, but he said that in the worst-case scenario of a trade war, there would be an impact on this region.

"South-east Asian countries are part of a supply chain which supplies to China (whose goods), in turn, head to the US. For example, Indonesia exports commodities like palm oil while Thailand exports rubber.

"These go into consumer products which go to the United States," he noted.

Singapore companies must "be cognizant" of their place in these supply chains and, if need be, diversify their pool of customers, he said. The impact could be mitigated by some gains. Mr Tan said some South-east Asian exports are in direct competition with China's, such as furniture and textiles.

In the case of tariffs being imposed on Chinese goods, South- east Asian exports would be more cost-competitive, with export-oriented countries like Vietnam and Thailand standing to gain the most.

Mr Tan said while South-east Asia would be hit by a trade war, the blow could be cushioned by the region's strong economic fundamentals.

For a start, the region is in a demographic sweet spot, with a growing middle class and a median age below 30, he added.

This bodes well for developing economies, such as Vietnam, which have labour-intensive jobs requiring a young population.

It will also boost domestic consumption as younger people are likely to buy more consumer goods as they become more affluent, creating opportunities for businesses targeting lifestyle and food services.

He urged consumer-focused Singaporean companies to tap on the "window of opportunity" in countries like Vietnam and Myanmar before the space gets too crowded.

"Your brand premium is higher when you go to places like Yangon and Hanoi, where the local population has less exposure to international brands," he said.

Last year, the trade-promotion agency facilitated 100 projects in South-east Asia, up from 88 in 2015, and 65 in 2014.

A version of this article appeared in the print edition of The Straits Times on February 20, 2017, with the headline 'Trade war? S'pore companies urged to look to S-E Asia'. Print Edition | Subscribe