These Asian countries could face the biggest hit from the US trade war with China

Knife display at Daiso in SingaporeKnife display at Daiso in Singapore

Taiwan, Malaysia and Singapore are among the Asian countries that could lose the most from a full-blown trade war between the U.S. and China, Capital Economics said in a note on Tuesday.

“If the tariffs did lead to a fall in U.S. imports from China, this would have knock-on effects for those countries in Asia which export intermediate goods to China, which are then assembled before being shipped off to their final destination,” the note said.

U.S. President Trump has stepped up his trade war this week, threatening late Monday, U.S. time, to slap a 10 percent tariff on another US$200 billion worth of imported goods from China, escalating his trade war. Trump said the move was in retaliation for China’s retaliation against his earlier tariffs on US$50 billion worth of imported goods from China.

Capital Economics noted that the new tariffs likely won’t be implemented for at least a few months, if at all, as Trump could back down from his threats.

“Until we know exactly which goods are being targeted, it will be impossible to calculate the impact,” it said. “However, the country that stands to lose the most is Taiwan, which supplies around 10 percent of China’s total imports of intermediate goods. We estimate the value-added within Taiwan of these exports is equivalent to around 1.8 percent of its GDP.”

For Malaysia, that figure was around 1.4 percent and for Singapore, it was around 1.0 percent, it said.

But it added, that the economic damage to those Asian countries could be smaller as China remains the dominant supplier globally of many goods sold in the U.S.

“U.S. consumers would struggle to find sufficient substitutes to replace the goods that they currently buy from China, at least in the short-term. What’s more, to the degree that other countries can step in, Asian exporters are well-placed to benefit from any shift in U.S. demand,” it said.

Capital Economics added that Asian countries could also pursue other markets, with governments in the region likely to push ahead with free-trade agreements, even as the U.S. sits on the sidelines.