Trade war turn of events as some ASEAN nations believed to be undervaluing, manipulating currencies. Countries possibly facing tariffs for undervaluing currencies include Vietnam and Singapore.
Important to Vietnam fiscal stimulation and infrastructure investments, Vietnam has an external debt of slightly over 48% v the 50% cap imposed by its National Assembly. One solution Vietnam is considering is pushing out bond maturity but this can be risky for holders and Vietnam’s economy.
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Thailand, Malaysia, Philippines, Cambodia, Myanmar risk tariffs for above reasons and/or Generalized System of Preferences (GSP) privileges violations, in addition to manipulation and undervaluation. Thailand, which could risk losing its GSP status, is currently the largest ASEAN nation benefactor of GSP.
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Some believe the Trump administration may leverage currency manipulation and undervaluation to persuade trade concessions. Throughout history, economics and trade policy for nations seems to be a game of profits, politics, and propaganda.
Largest beneficiaries of US Generalized System of Preferences (GSP) 2018
| Nation | USD MM Export Value to US (GSP) | % Nation’s Total Exports |
% Nation’s GDP | |
| 1 | India | 6,235 | 1.9% | 0.2% |
| 2 | Thailand | 4,315 | 1.7% | 0.9% |
| 3 | Brazil | 2,481 | 1.0% | 0.1% |
| 4 | Indonesia | 2,129 | 1.2% | 0.2% |
| 5 | Turkey | 1,899 | 1.1% | 0.2% |
| 6 | Philippines | 1,457 | 2.1% | 0.4% |
| 7 | South Africa | 868 | 0.9% | 0.2% |
| 8 | Cambodia | 588 | 4.7% | 2.6% |
| 9 | Ecuador | 458 | 2.1% | 0.4% |
| 10 | Argentina | 375 | 0.6% | 0.1% |
| … | ||||
| 20 | Myanmar | 75 | 0.4% | 0.1% |
Source for data above is USITC DataWeb. GSP offers developing nations preferential tariff status. The White House recently removed India’s GSP status.
This further drives OEM decision-making to encourage detailed analysis during EMS/ODM RFP phases for evaluating and selecting their contract electronics manufacturing partners and formulating supply chain strategy.
Currency manipulation, undervaluation
In looking at currency manipulation and currency undervaluation actions, which can impact a nation’s trade status and competitive capabilities, according to a report from US Treasury, “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States’ (May 2019), the US Treasury’s comments, in particular, for Vietnam, Singapore, and Malaysia regarding President Trump’s watch list for infractions, are as follows, below:
Vietnam
Vietnam on Trump watch list (currency manipulation, undervaluation), US Treasury writes, ‘As Vietnam strengthens its monetary policy framework, and reserves reach adequate levels, Vietnam should reduce its intervention and allow for movements in the exchange rate that reflect economic fundamentals, including gradual appreciation of the real effective exchange rate, which will help reduce Vietnam’s external surpluses.’
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Singapore
Singapore on Trump watch list (currency manipulation, undervaluation), US Treasury writes, ‘While certain structural factors contribute to Singapore’s large current account surplus, Singapore should undertake reforms that will lower its high savings rate and boost low domestic consumption, while striving to ensure that its real exchange rate is in line with economic fundamentals, in order to help narrow its large and persistent external surplus.’
Malaysia
Malaysia on Trump watch list (currency manipulation), US Treasury writes, ‘Malaysia’s external rebalancing in recent years is welcome, and the authorities should pursue appropriate policies to support a continuation of this trend, including by encouraging high-quality and transparent investment and ensuring sufficient social spending, which can help minimize precautionary saving.’
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