ASEAN’s Repeated Warnings on the US-China Trade War
Prolonged trade war between the United States and China may pose profound threats to ASEAN and the global economy, warned Singapore’s Minister of Trade and Industry, Chan Chun Sing, during an interview with Bloomberg on Thursday, Oct. 7.
According to Mr. Chan, in the short- to medium-term, shifts in global supply chains may result in net gains and losses for some Southeast Asian economies and industries. However, what global leaders really need to pay attention to is a “larger set of forces” that could be at play: the trade war’s long-term impact on global market confidence and structural shifts in the economy. Mr. Chan expounded that a protracted trade war will likely result in a loss of confidence in the global economy, instability in the financial markets and a global slowdown in global economic activity. In the worst-case scenario, compounded blows to the economy could cause a major breakdown in the WTO system, thereby leaving everyone “worse off.”
This commentary comes after the world’s two economic behemoths engaged in another around of tit-for-tat tariffs last month. US President Donald Trump imposed new tariffs on $200 billion worth of Chinese goods, in addition to the 25 percent tariffs that he slapped on $50 billion worth of Chinese goods last July. Apart from the sheer increase in the number of goods affected, the nature of the goods included in this new list revealed an escalation of trade tensions. While the previous round of tariffs focused almost exclusively on industrial goods like vehicles, chemicals and machinery, the new round targets many consumer products, such as clothing, food, TV and furniture. China retaliated almost immediately by levying a new round of tariffs on $60 billion worth of American imports.
Mr. Chan’s note of caution echoes the sentiments that many ASEAN leaders have voiced in the past year. Last May, Singapore’s Finance Minister Heng Swee Keat asserted that given the extensively integrated and interdependent nature of today’s global economy, “any action by any member, particularly by the major economies, can have a very big knock-on effect on everyone else.” No country would benefit from a trade war – not even the countries that started it.
Mr. Heng’s contention gained some validation when the US Census Bureau reported last Friday that the US trade deficit had increased to a six-month high in August. The trade imbalance widened by 6.4 percent ($3.2 billion), increasing from $50 billion in July to $53.2 billion in August. This figure exceeded analyst forecasts that had estimated a smaller 5 percent rise in trade deficit. It also marked a 8.6 percent year-on-year increase from Aug. 2017. The US performed worse in its goods trade deficit, which came in at $86.3 billion in August, a $3.8 billion increase from July.
Philippines’ Finance Secretary, Carlos Dominguez, admitted that the Philippines could benefit from a short-term boost if China decides to cut steel prices to increase sales outside the US. This would come in timely for the Philippines, which has just embarked on a six-year infrastructure enhancement project that would require a great amount of steel.
But like Mr. Chan, Mr. Dominguez also cautions that potential long-term losses from prolonged trade tensions could offset any short and medium-term gains. Because China is the biggest trading partner of the Philippines and several other nations in Asia, damages to China’s economy and GDP will certainly be felt across the region. If US and China tariffs trigger “tit-for-tat” moves by other national and regional economies, the world economy, including the US, will be in “deep kimchi,” Mr. Dominguez asserted.
Already in May, Mr. Trump’s decision to impose 25 percent tariffs on imported steel and 10 percent tariffs on imported aluminum from Europe, Canada, and Mexico was immediately met with vows of retaliation. Fortunately, Mr. Dominguez’s worst fears were averted as all the parties involved in this crisis eventually opted for more diplomatic resolutions. The US and EU agreed to suspend new tariffs on both sides as they engaged in bilateral negotiations to resolve trade disputes. Earlier this week, the US, Mexico, and Canada arrived at a newly negotiated trade deal. Though the deal left most of the old North American Free Trade Agreement (NAFTA) intact, the US President insisted that the countries named it the “United States-Mexico-Canada Agreement” (USMCA).
Despite being spared from a full-blown multilateral trade war, ASEAN’s shared concern about the likelihood of a protracted US-China trade war and its related consequences remain highly pertinent. Analysts warned that the Trump administration seemed to be “preparing for a potentially protracted economic war with China by clearing the decks of disputes with America's other trading competitors.” In addition to the USMCA and US-EU bilateral negotiations, the US has also signed a trade deal with South Korea and convinced Japan to start engaging in bilateral economic negotiations.
Last Thursday, JP Morgan Chase & Co. slashed its ratings for Chinese equities amid speculations that tensions will continue to escalate, leading to a “full-blown trade war” in 2019. “JPMorgan has adopted a new baseline that assumes a U.S.-China endgame involving 25 percent U.S. tariffs on all Chinese goods in 2019,” wrote the financial giant’s strategists in a client note last Wednesday. They added that "there is no clear sign of mitigating confrontation between China and the US in the near term."
The ongoing geopolitical and economic conditions cast a massive shadow over ASEAN’s long-term economic outlook. But these unfavorable circumstances may not necessarily spell doomsday for ASEAN as it could possibly serve as a much-needed impetus for the ASEAN countries to increase their commitments to the organization and to advance regional cooperation and integration.
In recent high-level summits like the World Economic Forum (WEF) on ASEAN 2018, ASEAN ministers repeatedly echoed each other’s call for greater regional collaboration. In their discussions, they placed heavy emphasis on finding ways to promote and maintain an open and global free-trade environment. ASEAN’s strengthened commitment to push forth the negotiation process for the Regional Comprehensive Economic Partnership (RCEP) denotes a prime, tangible example.
Speaking at WEF in Hanoi, Indonesian President Joko “Jokowi” Widodo struck a chord with the audience as he joked, “we are heading toward Infinity War… But rest assured, I and my fellow Avengers [ASEAN members] stand ready to prevent Thanos from wiping out half the world population.”
Jokowi clarified, "Thanos is not any individual person, sorry to disappoint you. Thanos is the misguided belief that in order for us to succeed, others must surrender. He is the misperception that the rise of some necessarily means the decline of others."
The long-term consequences of a prolonged US-China trade war could place the global economic system in jeopardy, but that represents just one of several possible outcomes. With careful navigation, diplomatic consultations and close cooperation between responsible nations and global leaders, there remains a good chance that ASEAN and the global economy could emerge unscathed.