As US-China trade war escalates, S Korea warns on impact
July 12 2018 09:43 AM
Chinese workers transferring bags of soybeans at a port in Nantong in China's eastern Jiangsu provin
Chinese workers transferring bags of soybeans at a port in Nantong in China's eastern Jiangsu provin


* S Korea: Trade war could be ‘prolonged and spread’

* China cuts its forecast for soybean imports

* Chinese currency dips; stocks rebound

* Survey of US business in China finds most oppose tariffs

* HK, S.Korea and Japan most vulnerable to US-Sino trade war: OCBC

The US-China trade war could harm South Korean exports of high-tech components, Seoul warned on Thursday, while Beijing cut its forecast for soybean imports and the Chinese currency fell as worries about fallout from the simmering conflict grew.

On Wednesday, Beijing warned it would hit back after the Trump administration raised the stakes in their trade dispute, threatening 10 percent tariffs on $200 billion of Chinese goods, a swift escalation after an earlier round of tariffs took effect only on Friday.

While Chinese shares regained heavy losses from the previous session, with the Shanghai Composite index rising 2.2 percent, the yuan fell against the dollar following the central bank's weakest daily fixing in nearly a year and after Washington's fresh tariff threats knocked the currency lower.

China had yet to say how it will respond after the fresh round of US tariffs would bring to $250 billion the total of Chinese goods facing added duties, once the latest list of duties take effect after a two-month comment period.

China only imported about $130 billion of US goods last year, meaning that to retaliate it will have to increase the size of the tariffs it imposes or resort to what it calls ‘qualitative’ measures, which US businesses fear could mean reprisals against their China operations.

A survey released by the American Chamber of Commerce in Shanghai found that most US businesses operating in China oppose the use of tariffs in retaliation for the challenges they face, from an uneven playing field to poor protection of intellectual property rights.

The tariffs initiated by US President Donald Trump have also drawn criticism from lawmakers in his own Republican Party, as well as from US trade groups worried about higher costs for businesses and consumers.

On Thursday, Beijing cut its forecast for imports of soybeans - the most-valuable crop it buys from the United States - after it imposed a 25 percent retaliatory tariff on an array of agricultural goods, which could inflict pain in Trump-supporting states such as Iowa, Kansas and Texas.

China warned that higher prices due to trade conflicts with the United States would curb demand as farmers switch to alternatives for animal feed.


Concerns about the knock-on effect of the trade war spread on Thursday, with South Korea, Asia's fourth-largest economy, warning that components and materials - ‘intermediate goods’ - used in home appliances, computers and communications devices could be caught in the crossfire.

South Korea's trade ministry said the trade war could be ‘prolonged and spread,’ adding that it would prepare responses and scenarios to cope with the economic impact of the trade row.

Its finance minister also warned that the dispute would present ‘serious downward risks’ to South Korea's export-reliant economy if the impact spread globally.

‘While the trade conflict between the US and China has had a limited impact so far, we can't rule out the possibility of a slowdown in the Chinese economy and a contraction in world trade should conflict grow and spread into the global market,’ Finance Minister Kim Dong-yeon said at a government meeting.

OCBC Bank in Singapore estimated that in a scenario where US tariffs apply to $250 billion worth of Chinese goods, South Korea's GDP growth could be reduced by 0.3 percentage point while Japan's growth could be cut by 0.2 percentage point.

‘China's closest neighbors, namely Japan, Korea and Hong Kong, are most vulnerable to a US-Sino trade war because they export mostly intermediate goods to China,’ OCBC said in a note.

South Korea's central bank on Thursday downgraded its growth outlook for this year to 2.9 percent, from 3.0 percent, after an export boom ground to a halt in June in the face of escalating US-China trade tensions.

Major auto producing countries such as South Korea are also bracing for steep US tariffs on autos and auto parts, as Trump has ordered a national security probe into the sector, which is expected to be completed this month.

Last updated: July 12 2018 11:13 AM

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