Speaker 1: President Donald Trump's trade war is upending supply chains and
Speaker 1: business yet again. After announcing sky high global tariffs in April,
Speaker 1: he soon put them on hold. That back and forth
Speaker 1: caused whiplash across Asia the world's factory floor companies canceled orders,
Speaker 1: then rapidly reopened them.
Speaker 2: Ships were suddenly in demand.
Speaker 1: With freight prices up the most all year, and bookings
Speaker 1: on those ships also soared, particularly the important China to
Speaker 1: US route. You're listening to Asia Centric from Bloomberg Intelligence.
Speaker 1: I'm Kante Dimitrieva here in Hong Kong, and today we're
Speaker 1: looking at what the trade data tells us about the
Speaker 1: fallout so far. How is this rapid fire change going
Speaker 1: to impact economic growth, currencies and investment? And are there
Speaker 1: any winners? Robert Suberaman is here to help us answer that.
Speaker 1: He's head of Global macro Research at NIMURA based in Singapore. Rob.
Speaker 3: Welcome, Thank you, Katia. Great to be here.
Speaker 1: Well, Rob, maybe we can start with what we do know.
Speaker 1: So Trump has announced tariffs, he paused them to negotiate
Speaker 1: bi lateral deals. What have you seen since then across
Speaker 1: the world and primarily here when it comes to sort
Speaker 1: of company reaction and trade flows.
Speaker 3: Well, I can tell you, Katya on the trade flows.
Speaker 3: My team's been analyzing the high frequency data plus details,
Speaker 3: very detailed look at exports by product and by destination,
Speaker 3: and i'd say, in a word, it's very complicated. Now
Speaker 3: we have a mix of front loading of exports in
Speaker 3: some countries, we have trade diversion happening. Instead of directly
Speaker 3: exports from China to the US, they're going to third countries.
Speaker 3: And we're also very much on the lookout for payback
Speaker 3: from the front loading of exports. So it's a real mix,
Speaker 3: you know, in terms of front loading, i'd say in
Speaker 3: Asian the data we've being getting for April shows very
Speaker 3: strong export growth in the well over double digit, over
Speaker 3: twenty percent in Singapore, Taiwan, and we're seeing in particular
Speaker 3: very strong export growth to the US. Malaysia's exports to
Speaker 3: the US forty five percent in April, Singapore's forty eight percent,
Speaker 3: of Vietnam's thirty four percent growth. So there is some
Speaker 3: science of trade diversion in our view, because when we
Speaker 3: looked at China's exports in April, they were down twenty
Speaker 3: one percent to the US but up twenty one percent
Speaker 3: to Asian, so some trade diversion. But the other interesting
Speaker 3: thing is US China tariff de escalation that's happened, and
Speaker 3: when we look at high frequency data, what we're seeing
Speaker 3: now is a very strong rebound in container vessels departing
Speaker 3: from China to the US, but particularly in orders for shipping.
Speaker 3: If we're looking at the bookings of ships from China
Speaker 3: to the US, they were up over one hundred percent
Speaker 3: in the week to eleven May. So it's looking like
Speaker 3: maybe we're going to be seeing a rebound in Chinese
Speaker 3: exports to the US in the coming months because there's
Speaker 3: this window of opportunity now while the tariffs have come
Speaker 3: down to step up those trade orders before. Who knows
Speaker 3: what's going to happen after the ninety day grace period expires.
Speaker 1: And you said that there's some signs that China may
Speaker 1: be sending goods to Southeast Asian neighbors, and then is
Speaker 1: the idea that they're going to the US from there.
Speaker 3: You can't be certain at this stage because you don't
Speaker 3: have as much granular detail. But what we are seeing
Speaker 3: is in April, this is before the tariff de escalation,
Speaker 3: China's exports to the US were down twenty one percent,
Speaker 3: but China's exports to Asian were up twenty one percent,
Speaker 3: and since then seen in the Asian data like Malaysia, Singapore,
Speaker 3: and Vietnam very strong exports to the US. So we
Speaker 3: can't be definitive, but there is some signs in this
Speaker 3: pattern of trade that maybe trade diversion is still going on.
Speaker 3: The other interesting thing cut here up is on the electronics.
Speaker 3: So Asia is a very big exporter of electronics, and
Speaker 3: we've seen very strong exports of electronics by Singapore, Malaysia, Taiwan,
Speaker 3: a lot of it high end semiconductors. And we do
Speaker 3: wonder whether this is in anticipation of maybe sexual tariffs
Speaker 3: on semiconductors and maybe more broadly tech products, that Asia,
Speaker 3: which is the hub in the world, the factory for
Speaker 3: making chips and electronic products, whether they're trying to get
Speaker 3: race ahead of potential sexual tariffs.
Speaker 1: Yeah, because if you're in americ and Company, I mean,
Speaker 1: at this point, you're probably thinking, we don't care where
Speaker 1: we have to put it, we don't care how much
Speaker 1: of it we have. We just need to get it
Speaker 1: here before tariffs come in exactly.
Speaker 3: And you know, the idea is to maybe build up
Speaker 3: your inventory with cheaper electronic products or other products, because
Speaker 3: who knows what's going to happen once, you know, July ninth,
Speaker 3: when the reciprocal tariff sixpire, or August twelve, after the
Speaker 3: US China tariff truce expires. I think generally there is
Speaker 3: quite a bit of signs that there's been front loading
Speaker 3: and trade diversion at this stage. The big question I
Speaker 3: think we have in the coming months is, you know,
Speaker 3: inevitably when there's front loading, there will be payback, and
Speaker 3: we aren't seeing much sign of the payback yet. Maybe
Speaker 3: it's too early. Maybe the only sign where maybe we're
Speaker 3: starting to see it is Korea's exports for the first
Speaker 3: twenty days of May we're down two point four percent,
Speaker 3: and Career has the most timely exports in Asia and
Speaker 3: they were down, So you know, maybe that's a sign.
Speaker 3: As we get more May data and June data, we'll
Speaker 3: start to see the other side of this. But as
Speaker 3: I said, because of now there's truce between the US
Speaker 3: and China, China is wrapping up its exports again, so
Speaker 3: it's very complicated at this stage. I'd say at the
Speaker 3: end of the day, we're in a world of higher
Speaker 3: tariffs and that should not be good for trade. But
Speaker 3: we're in a kind of intermediate period now where we're
Speaker 3: getting mixed results in the data.
Speaker 1: Yeah, because I mean you're going assumption as an economist,
Speaker 1: but also the sense you're getting from clients and people
Speaker 1: you're speaking with is the assumption that we're just in
Speaker 1: a world of sort of ten percent is the beast
Speaker 1: terraf for anything going into the US.
Speaker 3: Short answer I would say is yes, that there's a
Speaker 3: general sense that we're not going to go back to
Speaker 3: the world before Trump two point zero. And historically when
Speaker 3: tariffs go up, they don't come down that quickly back
Speaker 3: to where they originally were, So I think that's fair
Speaker 3: to say. I mean, the Numura assumption right now is
Speaker 3: fifteen percent US effective tariff rate once we take into
Speaker 3: account some of the sexual tariffs as well. So I
Speaker 3: think that is going to weigh on trade. But the
Speaker 3: other thing that we haven't talked about that's a big
Speaker 3: headwind is the uncertainty, the business uncertainty, because we don't
Speaker 3: know where the tariffs could potentially go back up again,
Speaker 3: and so I think businesses generally have become a lot
Speaker 3: more cautious about doing large investments because of the uncertainty
Speaker 3: around trade policy. But I would say generally foreign policy as.
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Speaker 1: How hard will that hangover be from all of this
Speaker 1: front loading?
Speaker 3: So I think it depends a little bit on where
Speaker 3: you're talking about, because in the US, I think it's
Speaker 3: a little bit different to the rest of the world
Speaker 3: because the US is the one that's imposing the tariffs
Speaker 3: on all countries, and so it is going to raise
Speaker 3: the costs of imports, and we think will start to
Speaker 3: show up in higher inflation, maybe as soon as the
Speaker 3: May CPI data. So that's a negative supply shock. But
Speaker 3: at the same time, you're probably also going to have
Speaker 3: a hit to demand because of the higher costs. Maybe
Speaker 3: some will be absorbed by firm in profit margins. Some
Speaker 3: will be passed on to inflation, and as you get
Speaker 3: higher prices for products on the shelf of supermarkets, it
Speaker 3: will start to weaken demand. So in the US we
Speaker 3: do think it is going to be a stagflationary shock,
Speaker 3: higher inflation, lower growth. But for the rest of the world,
Speaker 3: which by and large has not raised tariffs much, it's
Speaker 3: more of a negative demand shock from weaker exports and
Speaker 3: weaker business investment because of all the uncertainty, And so
Speaker 3: the rest of the world, I'd say it's more weaker
Speaker 3: growth going forward and disinflation. So US weaker growth, higher inflation,
Speaker 3: rest the world weaker growth, lower inflation. And in my team,
Speaker 3: we particularly think that the lower inflation will be most
Speaker 3: notable in Asia.
Speaker 1: How will that ripple through the economies. I'm thinking in
Speaker 1: places like Malaysia, Vietnam, South Korea where price growth is
Speaker 1: already slowing, and then Japan you have the government which
Speaker 1: is trying to engineer inflation. Well, surely that might throw
Speaker 1: a wrench into things. I mean, what kind of impact
Speaker 1: do you see this year when it comes to disinflation
Speaker 1: across Asia?
Speaker 3: Well, it's quite striking right now. That Japan I think
Speaker 3: has the highest inflation rate out of all the big
Speaker 3: economies in Asia. It hasn't been that way for decades.
Speaker 3: But I mean aving is that there's a few things
Speaker 3: that work here. One is that as tariffs go up
Speaker 3: against China by the US, we will see more of
Speaker 3: China's exports diverted to Asia. And these cheaper exports by China,
Speaker 3: and as Asia imports more and more of them, it
Speaker 3: is going to flood Asia with cheaper products. And that's distantly.
Speaker 3: We were already seeing that last year, and we think
Speaker 3: that's going to get stronger. The disinflationary force from China imports,
Speaker 3: but also energy prices cut here have come down a
Speaker 3: long way. In Asia is a very big net importer
Speaker 3: of energy, so that's disinflationary. And on top of that,
Speaker 3: we've had this. I don't think many people would have
Speaker 3: predicted this, but Asian currencies have by and large been
Speaker 3: appreciating against the dollar, which is also lowering the cost
Speaker 3: of imports. So you know, right now we have two
Speaker 3: countries Thailand and China, which on certain measures, are facing deflation.
Speaker 3: I wouldn't be surprised if we start to see more
Speaker 3: countries facing deflation in Asia or actually very low inflation.
Speaker 3: And you know, one implication from all this is that
Speaker 3: it will provide more room for Asian central banks to
Speaker 3: cut interest rates even if the FED is on hold.
Speaker 3: That's the view we have at MURA, is that from
Speaker 3: India to Thailand to Korea, we're going to say several
Speaker 3: more right cuts this year, Whereas for the FED, because
Speaker 3: of the inflation I talked about in the US, the
Speaker 3: FED will be a lot slower. We don't have the
Speaker 3: FED cutting until December.
Speaker 1: And if the central banks in the region, you have
Speaker 1: more room to cut rates. Meanwhile, trade picture uncertain but
Speaker 1: probably not going to be as high demand as we've
Speaker 1: been seeing in the past month. In total, would you
Speaker 1: say for the year, I mean, do some of these
Speaker 1: economic forces even out. Is this going to be a
Speaker 1: good thing for Asia, you know, because we are seeing
Speaker 1: this surgeon demand and the ability to cut rates and
Speaker 1: stimulate demand. Or is it on the whole kind of
Speaker 1: negative because tariff shocks and demand sharks are usually negative.
Speaker 3: I think on the whole it's going to be negative
Speaker 3: because I think we shouldn't underestimate the negative effects from
Speaker 3: all the uncertainty that's been created by radical economic policies
Speaker 3: from the Trump administration. But as you say, protectionism and
Speaker 3: tariffs is also negative. You know, the silver lining I
Speaker 3: would say is in Asia some rotation in the drivers
Speaker 3: of growth. I think the weak engines of growth will
Speaker 3: be exports and capex investment spending. On the other hand,
Speaker 3: I think we will see as I said, lower inflation
Speaker 3: in Asia, which will be encouraging for consumption, but also
Speaker 3: easier fiscal and monetary policies. So I think the resilient
Speaker 3: part of Asia is actually going to be domestic consumption,
Speaker 3: which will provide some offset but not a complete offset
Speaker 3: to the weakness in exports and capex.
Speaker 2: Yes, I mean speaking of consumer demand.
Speaker 1: One country we haven't talked about it as much yet
Speaker 1: is China and the domestic situation there, and officials have
Speaker 1: made it a priority this year to sperm more consumption.
Speaker 1: What are your thoughts on that. Are they going to
Speaker 1: be able to do that? Is it more of a
Speaker 1: long term project We shouldn't really expect a boost.
Speaker 3: So I think in China we have a situation now
Speaker 3: where the consumer confidence is very weak, as it's been
Speaker 3: hit by very severe lockdowns during the pandemic and then
Speaker 3: the property market crisis, and Chinese households have built up
Speaker 3: more leverage over the years, and so consumer spending is
Speaker 3: fairly tepid right now. Beijing is trying to do this
Speaker 3: trade in program where households can swap their existing durable
Speaker 3: goods for new ones at subsidized prices.
Speaker 2: And it's been pretty successful.
Speaker 3: It's been successful. It has been successful so far. But
Speaker 3: I'd say, cut to you, how many new fridges do
Speaker 3: you want to buy? So you know. One thing we
Speaker 3: feel for China is that it's not only front loading
Speaker 3: of exports, but it is also front loading of consumption
Speaker 3: through this trading program. And so while we are relatively
Speaker 3: positive on China's growth in the coming months because of
Speaker 3: all this front loading and with the tariffs coming down,
Speaker 3: I talked about a burst of export activity, but as
Speaker 3: we get into the second half of the year, we
Speaker 3: think there will be paidback in China for retail sales
Speaker 3: and exports. And to give you some numbers, we think
Speaker 3: that China's GDP growth could be around four point eight
Speaker 3: percent this quarter Q two, but in the second half
Speaker 3: of the year we have it slowing to around four percent.
Speaker 1: Okay, so for the full year, not quite reaching the
Speaker 1: five percent target that officials have set.
Speaker 3: Yeah, if you work out the full twenty twenty five
Speaker 3: year growth full class on our numbers, that would be
Speaker 3: around four point five.
Speaker 1: So really in the second half, trade slowing down quite a.
Speaker 3: Bit, sports slowing down quite a bit, and also probably
Speaker 3: some payback on the consumption side as well.
Speaker 1: With Chinese exports. You know, something we've been seeing is
Speaker 1: that even though China's share of exports to the US
Speaker 1: has gone down, but globally it's actually increased. So there's
Speaker 1: kind of a way that Chinese manufacturers have been finding
Speaker 1: or maintaining their place in supply chains. So I wonder
Speaker 1: if we will see that kind of continuing in the
Speaker 1: years to come. So you know, a company might not
Speaker 1: source from China, but they might source from that same
Speaker 1: company just located in Malaysia, for example.
Speaker 3: Yeah, so that phenomenon is very very clear in the data.
Speaker 3: What you said, In terms of China's export shared to
Speaker 3: the US in April, it has dipped now to ten
Speaker 3: point five percent, whereas if you look at, for instance,
Speaker 3: China's export shared to Asian countries, it's picked up now
Speaker 3: to nineteen point one percent. So it's getting close to
Speaker 3: being almost twice as much as to the US. And
Speaker 3: this is what I think we have to give credit
Speaker 3: to multinational companies. They're very, very nimble, and they obviously
Speaker 3: have factories around the world and they can shift their
Speaker 3: production fairly quickly to ensure that they minimize costs and
Speaker 3: maximize their profits. If you go back to Trump one
Speaker 3: point zero, in a way, Trump one point zero, all
Speaker 3: the US tariffs were aimed directly at China, and US
Speaker 3: trade deficit with China did narrow quite noticeably. But when
Speaker 3: you look at the US's overall trade deficit, it didn't narrow.
Speaker 3: It got larger. And that was because of what we've
Speaker 3: just talked about. Multinationals were able to reallocate their exports
Speaker 3: to the US, Chinese companies, multinationals in China that exported
Speaker 3: more to Vietnam, to Mexico that then got rerouted to
Speaker 3: the US. I think what's going to be interesting over
Speaker 3: the rest of this year is whether the US does
Speaker 3: and it is successful in trying to encircle China and
Speaker 3: getting other countries and particularly the EU to raise tariffs
Speaker 3: against over capacity from China and the dumping of Chinese
Speaker 3: exports into the EU. You know, if that happens, it
Speaker 3: will get much more challenging for China. And I think
Speaker 3: one interesting thing there will be, does China flood Asia
Speaker 3: its home market, its backdoor market with cheap imports, because
Speaker 3: you know the US market, the US consumer is massive,
Speaker 3: and as you start to restrict China's markets, Asia is
Speaker 3: a lot smaller as a consumer market, and so it
Speaker 3: can be hit a lot harder if China has to
Speaker 3: redirect a lot of its product to Asia. I mean,
Speaker 3: the other option for China would be to scale back
Speaker 3: production its own production, but then that's going to hurt
Speaker 3: China's economy and potentially the labor market and jobs quite
Speaker 3: a bit. I mean, as we talked about earlier, the
Speaker 3: ultimate solution is for China to really also increase its
Speaker 3: own consumer demand. But coming off the pandemic and the
Speaker 3: lockdowns and the property market crisis that was really severe,
Speaker 3: I don't think Chinese households are in a mood to
Speaker 3: really ramp up their spending aggressively in this stage. I
Speaker 3: think that's going to take time.
Speaker 1: And when you said encircling China and kind of how
Speaker 1: that will play out, is that of referring to how
Speaker 1: President Trump had these discussions with Mexico and China and
Speaker 1: floated this idea that those countries or other countries should
Speaker 1: perhaps add restrictions trade restrictions on China.
Speaker 3: Yeah, that's part of what I have in mind, is
Speaker 3: that the US could pressure other countries to kind of
Speaker 3: join this coalition to try to limit to China's exporting
Speaker 3: of cheap products. And in a way, it could be
Speaker 3: a coalition of countries that are trying to maybe decouple
Speaker 3: de risk from China. At the same time, China also
Speaker 3: may want to de risk from the US. And so
Speaker 3: you know, this leads to the discussion that's happening now
Speaker 3: about this risk that where you know, could move to
Speaker 3: a multi polar world where we have certain trade blocks
Speaker 3: for economic and geopolitical reasons. But I would say, at
Speaker 3: the end of the day, or you know, if we're
Speaker 3: moving to a world where you have certain blocks and
Speaker 3: restrictions and barriers to trade and you only trade within
Speaker 3: regions much less outside those regions, that all raises costs
Speaker 3: and inefficiencies, and so it's not good for global growth.
Speaker 1: Does it make sense for Southeast Asian economies any Asian
Speaker 1: economies for that matter, to join that kind of coalition
Speaker 1: If one were to exist, you know, like, economically speaking,
Speaker 1: does it make sense for these economies given their dependence
Speaker 1: on trade with China, Chinese Belt and Rold initiative and
Speaker 1: investment in infrastructure and companies across the region. Doesn't make
Speaker 1: sense for countries in that case to effectively add a
Speaker 1: tariff onto Chinese imports were restricted in any way.
Speaker 3: I think for Asia it's the toughest decision compared to
Speaker 3: Europe in the sense that Asia is very strongly linked
Speaker 3: to China economically. Now there's so much trade and investment
Speaker 3: between China and the rest of Asia, Whereas for many
Speaker 3: Asian countries, the US has been a very strong ally
Speaker 3: and a very important support from a security perspective, And
Speaker 3: so that is a challenge for many Asian countries that
Speaker 3: have i think essentially been hedging between China and the
Speaker 3: US many many years. It could be that what Europe
Speaker 3: decides to do could in turn then ultimately influence what
Speaker 3: Asia decides. So does the EU in the end get
Speaker 3: closer to the US with trade deals and maybe follows
Speaker 3: the US in being tougher on China, or does the
Speaker 3: EU actually not have a trade deal with the US
Speaker 3: and decides that it wants to maintain decent economic linkages
Speaker 3: with China. I think which way the EU goes will
Speaker 3: be important, because if the EU does not follow what
Speaker 3: the US wants to do here, then Asia has more flexibility,
Speaker 3: I think, to trade with EU and China. Whereas if
Speaker 3: the EU kind of does start to move down the
Speaker 3: path of strengthening ties with the US and reducing ties
Speaker 3: of China, then maybe it's going to be tougher for
Speaker 3: Asia and they may have to make a really hard
Speaker 3: decision about whether they're going to move more towards China
Speaker 3: or more towards the US and EU.
Speaker 1: Are there any side effects or knock on effects that
Speaker 1: we're not thinking about yet when it comes to the
Speaker 1: trade back and forth, the whip saying whatever you want
Speaker 1: to call it, the activity we've been seeing, anything that's
Speaker 1: been on your mind.
Speaker 3: I'm glad you asked that, because I think there's a
Speaker 3: real risk that we're going to see unanticipated supply side disruptions. So,
Speaker 3: if you think about it, we haven't had tariff rates
Speaker 3: this high for I think you've got to go back
Speaker 3: seventy years over a generation, and compared now to back
Speaker 3: then the world is so much more integrated and so
Speaker 3: you know whether it's the case that with these tariffs
Speaker 3: there could be a particular company sector that actually starts
Speaker 3: to run out and shortages of a critical component that
Speaker 3: then affects the whole production of a finished good. That's
Speaker 3: one way this could happen and we could see these
Speaker 3: unforeseen consequences. Just to give you an example, what about
Speaker 3: the US construction sector Under the Trump administration, There's been
Speaker 3: a big cutback on immigration and even deportations. Migrant workers
Speaker 3: are so important for the construction sector in the US,
Speaker 3: and we've had tariffs on aluminium, steel, potentially lumbar going forward.
Speaker 3: A lot of imports that go into construction come from China,
Speaker 3: let's say air conditioning for example. So are we're going
Speaker 3: to suddenly face a bottleneck shortage of supply of new
Speaker 3: homes being constructed in the US as one example. The
Speaker 3: other example I'd give you is small companies in the
Speaker 3: US that depend very heavily on imports. And they're small,
Speaker 3: so they really need activity to flow through through and
Speaker 3: production and sales to happen, or they're going to have
Speaker 3: cash flow problems. What happens if some of these small
Speaker 3: companies start to face it's just too expensive for them
Speaker 3: to continue. That could have flow on effects to the
Speaker 3: small banks that are the biggest lenders to small companies
Speaker 3: in the US. So I do worry about unforeseen kind
Speaker 3: of consequences. And even in Asia, we're starting to see
Speaker 3: more and more cheap imports from China coming in. Are
Speaker 3: we going to see more small companies in Asia starting
Speaker 3: to face too much competition from China and they can't
Speaker 3: continue in operating as they have. So we've had a
Speaker 3: big shock at the end of the day. Even though
Speaker 3: tariffs have come down a bit, they're still much much
Speaker 3: higher than they used to be and there's so much uncertainty.
Speaker 3: I think we have to be prepared for unforeseen disruptions
Speaker 3: going forward on the supply side.
Speaker 2: Cautionary note there.
Speaker 3: Yes, I'm afraid so well.
Speaker 1: Thanks so much for joining us today, Rob, I really
Speaker 1: appreciate it.
Speaker 3: Thanks Cattie, I really enjoyed it.
Speaker 1: You've been listening to Asia Centric from Bloomberg Intelligence. I'm
Speaker 1: Katjudmitrieva here in Hong Kong. You can find all of
Speaker 1: our episodes on Apple Podcasts, Spotify, or wherever you listen.
Speaker 1: This podcast was produced and edited by Clara Chen. Thanks
Speaker 1: for listening and see you next time.