Asian markets edgy amid uncertainties over tariffs

Aluminium and toys are on the list of goods affected by US tariffs. PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
Aluminium and toys are on the list of goods affected by US tariffs. PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
Aluminium and toys are on the list of goods affected by US tariffs. PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
Aluminium and toys are on the list of goods affected by US tariffs. PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
Aluminium and toys are on the list of goods affected by US tariffs. PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
Aluminium and toys are on the list of goods affected by US tariffs. PHOTOS: REUTERS
Aluminium and toys are on the list of goods affected by US tariffs. PHOTOS: REUTERS, AGENCE FRANCE-PRESSE
Aluminium and toys are on the list of goods affected by US tariffs.PHOTOS: REUTERS

Stock markets across Asia were edgy in the run-up to the signing of phase one of the trade deal between the United States and China.

The relief over the deal was dampened after a senior official said most US tariffs on Chinese goods would remain in place.

"These tariffs will stay in place until there's a phase two (of the deal)," US Treasury Secretary Steven Mnuchin said. This soured the mood among investors. Market-watchers said yesterday's deal was a step in the right direction, but uncertainties remained.

After the deal was negotiated last month, Washington agreed to suspend fresh tariffs that were to have taken effect on Dec 15, and to halve existing tariffs on US$120 billion (S$162 billion) worth of other goods to 7.5 per cent. It kept in place 25 per cent tariffs on US$250 billion worth of Chinese goods.

Industry players said the deal offered some short-term stability, but the fact that the bulk of tariffs remained in place would continue to prove a drag on trade growth.

China, the region's largest trading partner, likely grew at its weakest pace in nearly 30 years in the fourth quarter, a Reuters poll showed.

Sceptics also question if the phase one deal can stick, partly due to the massive increase in US imports China would have to make as part of the terms.

The uncertainty triggered a pullback across most Asian markets, with Singapore stocks falling 0.41 per cent, Hong Kong's Hang Seng dipping 0.39 per cent and Japan's Nikkei down 0.45 per cent.

Some industry players said they had already relocated their manufacturing operations out of China to counter the burden of tariffs. Others are studying their options.

Ms Joyce Seow, group executive director of Watson EP Industries, said her company had planned to relocate part of its consumer electronics production from China to Singapore, but had now put the move on hold. Her company's US clients have been absorbing the 15 per cent tariff for the past six months.

Ms Seow said: "We were already preparing for the shift, which would have affected 20 per cent of our production volume in China, when the news broke. If the deal is confirmed, then we will stay put in China." She said that while new developments had brought some stability, the US clients were still paying a 7.5 per cent tariff.

  • TARIFFS

  • The US will maintain:

    25% tariffs on US$250 billion worth of Chinese imports.

    7.5% levy on another US$120 billion worth of imports.

    China is not expected to commit to specific tariff reductions, but will exempt certain US products from duties. 

    SOURCE: REUTERS

Mr Ho Meng Kit, CEO of Singapore Business Federation, said the deal was a step in the right direction.

More stable trade relations between the US and China would offer relief to businesses in Singapore and around the world.

"Businesses have been plagued by weak demand and poor confidence over the last year... Whether (phase one) will enable our businesses to make supply chain investments as well as expansion and hiring decisions is unclear," he said. The United States and China, two of Singapore's largest trading partners, account for more than 20 per cent of Singapore's merchandise trade between them.

A number of difficult issues still need to be resolved after the deal is signed. These include Chinese subsidies for state-owned firms and intellectual property protections, which some say will likely be negotiated in a phase two deal.

  • KEY FEATURES IN US-CHINA TRADE DEAL

  • PURCHASES

    China to buy an additional US$200 billion (S$269 billion) worth of American goods over two years (compared with a 2017 baseline of US exports to China), including:

    US$32b more in farm goods. 

    US$75b more in manufactured goods. 

    US$50b more in energy supplies. 

    US$40b more in services. 

Mr Ho added: "We understand that the phase one deal will address structural issues on intellectual property and technology transfer... Some tariffs are scheduled to be reduced but the remaining tariffs (ranging from 7.5 per cent to 25 per cent) will continue to weigh down business sentiment and increase price burden on consumers and companies.

"We also need to know details of the Chinese purchases of US products and services and examine if this will distort trade provided by Singapore and the region," he said.

A version of this article appeared in the print edition of The Straits Times on January 16, 2020, with the headline 'Asian markets edgy amid uncertainties over tariffs'. Print Edition | Subscribe