The ongoing trade war
between US and China, two of the largest economies in the world, could wipe out
about 0.2% to 0.3% of the Asean region's gross domestic product (GDP), says
ASEAN+3 Macroeconomic Research Office Ltd (AMRO) chief economist Dr Khor Hoe
Ee.
“The trade tariffs will
have an impact on demand. Some emerging markets will be affected more than
others, especially those that manufacture for exports, which are plugged into
the global value chain. Countries that produce commodities will be less
affected,” he told reporters at the Asean Roundtable Series titled “What
Lessons Learned from Financial Crises of Recent Times”, organised by CIMB Asean
Research Institute (CARI) today.
The US had slapped a
tariff of 25% on US$34 billion Chinese goods earlier this month, with Beijing
retaliating by imposing tariffs of the same magnitude.
Another tariff on US$16
billion is expected to kick in soon, while the US administration has also
announced a new 10% tariff on US$200 billion Chinese imports. The new tariff
will not take effect for at least two months, in order for the US industry to
have time to comment on the products selected for levies.
According to Khor, taking
into consideration the new tariffs on US$200 billion Chinese goods, it will
probably increase the impact by another 0.1 and 0.2 percentage points.
The bigger concern lies on
the effect it would have on the financial market and its spillover impact on
confidence, investment, as well as the interest rates, he noted.
“If for any reason,
interest rates were to go up, central banks around the world will be forced to
tighten policy and this would lower growth further,” he said.
Earlier during the panel
discussion which was chaired by CARI chairman and Asean Business Club president
Tan Sri Dr Munir Majid, concerns were raised on whether a “perfect storm” is in
the making with increased uncertainties and potential spillover effects on the
financial markets, due to the US-led trade wars.
“US President Donald
Trump’s 'America First' policy is causing global instability in geopolitics,
economies and trade. The US Federal Reserve is also showing less concern than
ever, about the impact of its monetary policies on non-American economies.
"The so-called
normalisation of central bank monetary management in Europe as well, has seen
outflows from Asean capital and financial markets,” Munir said.
Another panelist, Tan Sri
Andrew Sheng, who is also the advisor for CARI, as well as the chairman of
Khazanah Research Institute (KRI), emphasised the over-dependency on monetary
policy and financial regulations, post-global financial crisis about a decade
ago.
“Democratic politics
refused the use of painful structural reforms and taxation (fiscal tool) to
address the structural imbalances and social inequalities.
The choice was made to
over-use monetary policy and complex financial regulations that led to even
more capture and concentration within the system, namely growing income and
wealth inequalities, because the super-rich gained excessively at the expense
of the less rich,” Sheng said.
Policy-making needs a
holistic view that recognises and responds to the six megatrend shifts:
geopolitics, geography, gender, geo-climate change, generational and G5 (fifth
generation) technology, he added.
Sheng pointed to the rise
of populism as seen in US and in some European countries as evidence of major,
complex disruptions aggravating inequality and social losses.
David Marsh, another
panelist who is chairman and co-founder of The Official Monetary and Financial
Institutions Forum, concurred, saying policy makers need to be cautious of the
trigger points for crises, including political developments, which are not
within the purview of central banks.
“It is prudent to have in
place, contingency plans for emergency action on multiple fronts. Never
overestimate a nation’s abilities to overcome its difficulties by itself. It
will almost certainly need international support and lining up such action in
advance can be crucial,” Marsh said.
Dr Hans Genberg, adviser
for macroeconomic and monetary policy management, South East Asian Central
Banks, who was also on the panel, believes emerging markets in the region is
capable of weathering any potential crisis stemming from the US or Europe.
However, he cautioned that most experts have yet to identify potential crises
from within the region itself.
Frank Scheidig, global
head of senior executive banking at DZ Bank, said he doesn't see serious
recession happening in Asean.
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