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GLOBAL ECONOMICS | SPECIAL REPORT
ASIA-PACIFIC’S VULNERABILITY TO US PROTECTIONISM April 26, 2017
Asia-Pacific Countries’ Relative Vulnerability to
Potential Protectionist Trade Policies in the US


Malaysia, the Philippines, and Japan appear relatively vulnerable to
changes in US trade policies on the basis of an index of Asia-Pacific
(APAC) countries’ economic exposure to the US.
China’s relative vulnerability to changes in US trade policies is below
the APAC regional average: its exports contribute a smaller than
average share to its economy and it is relatively less integrated into
global supply chains. However, China’s sizeable bilateral trade surplus
with the US keeps it at the centre of US trade-policy discussions.
The US is the second most important export destination—right after China—for
most countries in APAC. Therefore, export-oriented Asian economies would be
adversely affected should the US administration move ahead with the
implementation of protectionist trade policies, such as import tariffs, termination of
existing trade agreements, or disincentives, such as tax charges, for multinational
corporations to maintain or expand production outside the US.
One such negative trade policy development has already occurred: the US
withdrawal from the Trans-Pacific Partnership (TPP) was a disappointing
development for the APAC economies involved in its negotiation. In terms of the
US-China relationship—which influences trade dynamics throughout the APAC
region—the risk of an outright trade war between the two countries has diminished
significantly following the meeting between President Donald Trump and
President Xi Jinping in early April. Nevertheless, we remain watchful for possible
frictions as the Trump administration remains committed to addressing US trade
policy imbalances.
Trade ties are just as important for the US as they are for Asia-Pacific. APAC
provides 41% of all goods imported to the US, a higher share than any other
region (NAFTA provides 26%). In particular, APAC is an important supplier of final
goods to the US, with 84% of US imports from the region consisting of consumer
and capital goods. Electronics, machinery, and vehicles are the main US imports
from APAC (chart 1).
This report focuses on assessing APAC countries’ relative vulnerability to the
potential rise of US protectionism through their dependence on trade with the US,
the depth of their integration with global supply chains that ultimately export to the
US, and the diversity of their goods exports to the US. Using these metrics we
build a US exposure index on a representative sample of 16 countries in AsiaPacific, which allows us to rank the regional economies according to their relative
vulnerability to changes in US trade policy.
DIRECT GOODS EXPORT EXPOSURE
Economic growth throughout Asia-Pacific relies heavily on export-sector
performance. On average, goods exports are equivalent to about 23% of regional
GDP. The direct exposure to US import demand in each regional economy is the
most important element of our index and we include two metrics to capture this
CONTACTS
Tuuli McCully
65.6305.8313
Scotiabank Economics
[email protected]
Raffi Ghazarian
1.416.866.4211
Scotiabank Economics
[email protected]
Chart 1
Top 5 US Imports From Asia-Pacific
Electrical machinery,
equipment and parts
Nuclear reactors,
machinery, mechanical
equipment and parts
Vehicles
and parts
Clothing and
accessories
Furniture
% of total imports,
2015
0
5
10 15 20 25
Sources: Scotiabank Economics, UN Comtrade.
Chart 2
APAC Exports to the US
Vietnam
Cambodia
China
Japan
India
Bangladesh
APAC
Philippines
Thailand
Korea
Malaysia
New Zealand
Indonesia
Hong Kong
Singapore
Australia
Laos
% of total
exports, 2015
0
10
20
Sources: Scotiabank Economics, IMF.
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GLOBAL ECONOMICS | SPECIAL REPORT
ASIA-PACIFIC’S VULNERABILITY TO US PROTECTIONISM April 26, 2017
Chart 3
key source of vulnerability. We compare each country’s goods exports to the US as a
percentage of its total international exports (chart 2) and the share of exports to the US
APAC Exports to the US
in the country’s nominal GDP (chart 3).
Vietnam
Many APAC countries send a significant share of their exports to the US, but the
importance of these exports in total output terms varies. On average, the region sells
15% of its exports directly to the US. Vietnam sells a quarter of its exports to the US,
followed closely by Cambodia with the US purchasing 23% of its total shipments
abroad (chart 2). China and Japan send 22% and 20%, respectively, of their exports to
the US. However, Vietnam and Cambodia are significantly more vulnerable to
protectionist trade policies in the US as their exports to the US are equivalent to 20%
and 17% of their annual GDP, respectively (chart 3). Despite the US’s importance as a
market for China and Japan, the larger and more diverse nature of their economies
provides them with some cushion against changes in US policies: Chinese and
Japanese shipments to the US correspond to only 4% and 3% of their respective
GDPs, close to the regional average. Although Malaysia’s US export share is below the
APAC average, its US exports account for a substantial portion of its GDP: the country
sells only 14% of its exports to the US, but this is equivalent to over 11% of Malaysia’s
GDP, making it relatively highly exposed to the US.
INDIRECT GOODS EXPORT EXPOSURE
In addition to the direct export impact, higher duties on US imports would inflict
secondary adverse effects on the region due to its deeply integrated supply chains.
Exports of intermediate goods and raw materials represent 52% of the region’s total
exports (chart 4). For instance, Asia-Pacific economies’ exports to China—the numberone export destination for most countries in the region—are often inputs for goods
assembled in China and shipped onward to the US. Therefore, any protectionist US
trade policy measures targeted at specific countries—such as China, which accounts for
half of the US trade deficit in goods—would be felt throughout the region. Accordingly,
the share of intermediates in a country’s total exports is the third metric in our index.
On average, half of APAC exports are intermediate goods. Laos, Australia, and
Indonesia export significant shares of intermediates and materials (87%, 80%, and
69% of total exports, respectively). However, their exports consist mainly of
commodities—mostly wood (Laos), mineral products (Laos, Australia, and Indonesia)
and metals (Australia)—that specifically feed the booming Chinese infrastructure and
real estate sectors. The indirect supply-chain impact stemming from US protectionism
would therefore be felt more strongly by countries that produce intermediates for the
production of consumer and capital goods, namely Malaysia, the Philippines, South
Korea, Japan, and Singapore. A significant share of these countries’ exports consists of
electronic components such as integrated circuits and semiconductor devices (these
two product categories combined account for 31% of total exports of the Philippines,
24% in Malaysia, 19% in Singapore, 13% in South Korea, and 6% in Japan). Indeed,
the electronics value chain is particularly exposed to changes in US trade policy given
the fact it is the top US imported goods category.
PRODUCT CONCENTRATION EXPOSURE
Countries that do not offer a diversified export product mix would be at a
disadvantage should US protectionism focus on certain goods categories, such as
those in which the US has the largest trade deficits globally, namely
Cambodia
Malaysia
Thailand
Singapore
Korea
China
APAC
Philippines
Japan
Bangladesh
New Zealand
Indonesia
Hong Kong
India
Australia
Laos
% of GDP, 2015
0
5
10
15
20
Sources: Scotiabank Economics, IMF.
25
Chart 4
Total Intermediate Goods Exports
Laos
Australia
Malaysia
Indonesia
Philippines
Korea
Japan
Singapore
India
APAC
Thailand
Hong Kong
China
New Zealand
Vietnam
Cambodia
Bangladesh
% of total
exports, 2015
0
25
50
75
100
Sources: Scotiabank Economics, UN Comtrade.
Chart 5
Top 3 Product Concentration
Cambodia
Bangladesh
Japan
Vietnam
APAC
China
Malaysia
Korea
Philippines
India
Thailand
New Zealand
Hong Kong
Indonesia
Singapore
Australia
Laos
% of total trade, 2015
0
5
10
15
20
25
Sources: Scotiabank Economics, UN Comtrade.
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GLOBAL ECONOMICS | SPECIAL REPORT
ASIA-PACIFIC’S VULNERABILITY TO US PROTECTIONISM April 26, 2017
telecommunications equipment, computers and related parts, Table 1
and passenger cars. Accordingly, the fourth metric in our
Cambodia: Top 5 Exports to US
relative vulnerability index is a concentration ratio that
Sector
Clothing and accessories
captures the degree to which total exports to the US are
Footwear
concentrated in a small number of product categories; in our
Plastics
case we chose the top 3 categories for each country.
Leather products
Furniture
Some of the least-developed countries in Asia, such as
Cambodia and Bangladesh, have the greatest product
concentration in the region: they focus on exporting clothing
and footwear (chart 5 and table 1). However, US tariffs on
imported apparel (around 10–14%) are already relatively high
compared with other products, which may lessen the
perceived need for higher protectionist measures for the
textile and apparel industry in the US. Product concentration
is also high in Japan, Vietnam, China, and Malaysia. Japan,
China, and Malaysia appear fairly vulnerable because a large
share of their exports to the US are higher-value-added
products in the sectors with the aforementioned largest US
trade shortfalls and these goods currently enjoy relatively low
import tariffs (less than 1.5% on average).
ASIA-PACIFIC’S RELATIVE VULNERABILITY TO US
PROTECTIONISM: INDEX CONSTRUCTION
To quantify and compare Asia-Pacific countries’ relative
vulnerability to changes in US trade policy, we constructed an
index that ranks the 16 APAC economies studied in this report
according to their US exposure (table 2 and chart 6), by
aggregating the four exposure metrics discussed in this report.
The index is constructed by taking the arithmetic mean of the
four equally weighted components for 16 representative
countries in the Asia-Pacific region:

The first component is each country’s direct exports to the
US as a percentage of its total goods exports;

The second element is each country’s exports to the US
as a percentage of its nominal GDP;


% exports to US
81.8
7.2
2.3
1.8
1.5
% total exports
17.5
1.5
0.5
0.4
0.3
% exports to US
87.6
3.6
2.5
1.9
0.7
% total exports
15.1
0.6
0.4
0.3
0.1
% exports to US
35.0
% total exports
6.7
22.1
4.2
12.5
2.4
4.9
2.8
0.9
0.5
% exports to US
27.4
% total exports
5.7
21.1
11.8
11.1
4.4
2.5
2.3
6.6
1.4
% exports to US
% total exports
27.0
5.6
21.2
6.4
6.1
5.1
4.4
1.3
1.3
1.1
% exports to US
% total exports
62.3
8.0
11.2
1.4
5.6
4.6
2.9
0.7
0.6
0.4
Bangladesh: Top 5 Exports to US
Sector
Clothing and accessories
Other textile articles
Headgear
Footwear
Leather products
Japan: Top 5 Exports to US
Sector
Vehicles and parts
Nuclear reactors, machinery,
mechanical equipment and parts
Electrical machinery,
equipment and parts
Optical, photographic or medical
instruments, accessories and parts
Other commodities
Vietnam: Top 5 Exports to US
Sector
Clothing and accessories
Electrical machinery,
equipment and parts
Footwear
Furniture
Nuclear reactors, machinery,
mechanical equipment and parts
China: Top 5 Exports to US
Sector
Electrical machinery,
equipment and parts
Nuclear reactors, machinery,
mechanical equipment and parts
Clothing and accessories
Furniture
Toys and accessories
Malaysia: Top 5 Exports to US
The third component is each country’s exports of
intermediate goods as a percentage of its total goods
exports; and
The final component is each country’s top 3 export
categories to the US as a percentage of its total goods
exports.
Sector
Electrical machinery,
equipment and parts
Nuclear reactors, machinery,
mechanical equipment and parts
Optical, photographic or medical
instruments, accessories and parts
Rubber and rubber products
Furniture
Sources: Scotiabank Economics, UN Comtrade.
Index values range between 0 and 100 with the latter implying extreme dependence on the US market. The average index value
for the APAC region is 21.1.
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GLOBAL ECONOMICS | SPECIAL REPORT
ASIA-PACIFIC’S VULNERABILITY TO US PROTECTIONISM April 26, 2017
RESULTS
According to our index rankings, Malaysia, the Philippines, and Japan are the three
countries in Asia-Pacific most vulnerable to changes in US trade policy. The fact that
these three countries are at very different stages of economic development implies that
both advanced and developing nations in APAC could be hurt by the rise of US
protectionism.
Table 2
Asia-Pacific Vulnerability Rankings
(26.2)
1) Malaysia
2) Philippines (23.9)
3) Japan (23.5)
4) Vietnam (23.3)
5) Korea (23.0)
6) Laos (22.4)
Malaysia appears to be the country that is relatively most vulnerable in Asia-Pacific to
adverse changes in US trade policy. The nation’s direct goods shipments to the US are a
significant source of income for the economy (11.4% of GDP) and fairly concentrated on
few product categories (microchips alone account for 30% of Malaysian exports to the
US). In addition, Malaysia is also tightly integrated into global supply-chains. The
Philippines’ second place owes to the importance of the US as an export destination
(15% of total exports, yet US exports as a share of GDP are relatively low at 3%),
combined with a high export product concentration and the country’s status as a
producer of intermediates for the global trade network.
Japan ranks third, which mainly reflects the importance of the US as a trading partner (the
US purchases a fifth of Japanese exports). Japan’s vulnerability could be further amplified
by the fact that the US has a sizeable bilateral goods trade deficit with Japan—amounting
to USD 69 bn in 2016, second only to China (chart 7)—as this may trigger a formulation of
Japan-specific trade policies in the US. In addition, Japan has been placed onto the US
Treasury’s “Monitoring List” of major US trading partners along with South Korea, China
and Taiwan in the APAC region. Although the list does not label these countries as
currency manipulators, they still “merit close attention to their currency practices”.
South Korea ranks 5th in our index and is a highly trade-oriented economy: its
merchandise trade is equivalent to 70% of GDP. The country ships a sizeable share of
its exports to the US (over 14%) and is tightly connected with global value chains.
Nevertheless, its exposure to the US is sheltered by the fact that it is one of only three
APAC countries—in addition to Singapore and Australia—that have an existing freetrade agreement with the US (we assume that the FTA will not be revoked).
China stands out with a vulnerability ranking that is relatively low (10 of 16) despite the
fact that the US is its biggest trading partner and its exports to the US are relatively
concentrated in a few product categories. These facts are offset by (a) Chinese export
receipts from the US are relatively small compared with the size of its economy; and (b)
intermediate goods account for a smaller share of China’s global exports compared with
its APAC neighbours, which could lessen indirect adverse supply chain ramifications.
Therefore, our index implies that any protectionist measures, such as generic import
tariffs, would have a lesser impact on the performance of the Chinese economy
compared with most of its regional peers. However, we highlight that the China-US trade
relationship is more imbalanced than the bilateral relationship with Japan: China
accounts for roughly half of the US goods trade deficit (the bilateral US trade shortfall
was USD 347 bn in 2016). Therefore, the US administration has implied it will give
special attention to China when formulating its trade policies. Given that China supplies
largely final goods to the US (three quarters of Chinese exports to the US are final
goods), China-targeted tariffs would ultimately be felt by the American consumer. In
addition, US action against China could inadvertently hurt traditional US allies such as
South Korea, Japan, the Philippines, and Australia that are part of the Asian value chain,
which could have unintended repercussions for the US.
7) Australia (22.1)
8) Indonesia (22.1)
9) India (20.3)
10) China (20.1)
11) Thailand (19.4)
12) Singapore (19.3)
13) Cambodia (17.9)
14) Hong Kong (16.6)
15) New Zealand (15.5)
16) Bangladesh (10.6)
Sources: Scotiabank Economics, IMF, UN Comtrade.
Chart 6
Asia–Pacific Vulnerability
Index to US Protectionism
Mexico
Canada
Malaysia
Philippines
Japan
Vietnam
Korea
Laos
Australia
Indonesia
APAC
India
China
Thailand
Singapore
Cambodia
Hong Kong
New Zealand
Bangladesh
index, max.=100
0
10
20
30
40
Sources: Scotiabank Economics, IMF,
UN Comtrade.
Chart 7
50
US Trade Balance
USD bns, 2016
China
Japan
Mexico
Vietnam
Korea
Malaysia
India
Thailand
Indonesia
Canada
Bangladesh
Cambodia
Philippines
New Zealand
Laos
Singapore
Australia
Hong Kong
-400 -300 -200 -100
0
Sources: Scotiabank Economics, US BEA.
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GLOBAL ECONOMICS | SPECIAL REPORT
ASIA-PACIFIC’S VULNERABILITY TO US PROTECTIONISM April 26, 2017
From a regional perspective, although APAC accounts for a larger share of goods exports to the US than NAFTA, the region’s
overall vulnerability to US protectionism is relatively much less severe (chart 6). Mexico and Canada, with 49.5 and 46.9 index
values respectively, are much more vulnerable to changes in US trade policy. In a similar fashion, many other Latin American
countries would likely be significantly affected by protectionist US trade policies, given their proximity to the US and to Mexico.
OTHER CONSIDERATIONS
Our vulnerability index focuses on trade of goods. Services trade was omitted owing to
deficiencies in data availability. Another source of vulnerability arises from APAC’s
dependence on US-originated foreign direct investment (FDI). The US administration has
shown that it will not hesitate to put pressure on American manufacturing corporations to
shift production into the US instead of moving, maintaining, or expanding operations
offshore. Indeed, some US automakers have already adjusted their plans and have
announced that they will increase production at home. Should the trend of the US
administration's intervention into corporate matters intensify, Singapore and Hong Kong
would be particularly exposed (despite their low rankings in our vulnerability index): their
average annual FDI inflows from the US over the past five years were equivalent to 9% and
2% of their GDP, respectively—a much higher share than elsewhere in the region (chart 8).
Simultaneously, however, American corporations’ investments abroad over many years
have helped both Singapore and Hong Kong to accumulate sizeable stocks of USoriginated FDI that have strengthened the two economies’ status as regional business
hubs. These stocks would offset the economies’ vulnerability to some extent since they
create a natural constituency in the US that could oppose changes to trade and investment
policies.
Chart 8
US Foreign Direct Investment Flow
Singapore
Hong Kong
Australia
APAC
Korea
Malaysia
% of local GDP, 2011-15
0
2
4
6
8
10
Sources: Scotiabank Economics, US BEA, IMF.
THE ROAD AHEAD
Trade is essential to the health of the Asia-Pacific economy due to its sizeable contribution to economic growth and people’s
wellbeing; accordingly, the trend of rising protectionism—particularly in the US—is worrisome. While the US administration’s
rhetoric toward China has recently softened, the risk of changes to US trade policy persists. It remains to be seen what steps, if
any, the current US administration will take: whether it will target particular countries or industries on its trade relations with APAC,
or if geo-political factors will inhibit protectionist rhetoric from being turned into action.
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GLOBAL ECONOMICS | SPECIAL REPORT
ASIA-PACIFIC’S VULNERABILITY TO US PROTECTIONISM April 26, 2017
INTERNATIONAL ECONOMICS GROUP
Pablo F.G. Bréard, Head
416.862.3876
Scotiabank Economics
[email protected]
Erika Cain
416.866.4205
Scotiabank Economics
[email protected]
Tuuli McCully
65.6305.8313
Scotiabank Economics
[email protected]
Estela Molina
416.862.3199
Scotiabank Economics
[email protected]
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