ADB Report Says A Prolonged China-US Trade Escalation Will Hurt Global Economy

Trade impact on GDP (Photo: Asian Development Bank)

A prolonged trade war this year between the United States and China will continue to cause economic disruptions, contributing to a weaker global gross domestic product and lower trade, according to the latest Asian Development Bank (ADB) report.

In an email interview with Business Times, Valerie Mercer-Blackman senior economist with ADB's Economic Research and Regional Cooperation Department, said despite the trade escalation that will affect countries that rely heavily on China and the U.S. for imports will continue to suffer but several Southeast Asian nations are the most likely alternative manufacturing exporters.

"We will not be able to fully quantify the impact of the trade conflict until we see definitive news out of the negotiations between  China and the US. However, if the trade conflict drags on, and there is neither an escalation nor a de-escalation from current tariff rates, we could start to see some trade redirection in 2020 and beyond which benefits countries or industries that compete directly with the People's Republic of China.

According to the latest ADB  report, the shift in trade in investment will benefit Southeast Asian industries that compete directly with China such as in the electronics and textiles.

She said investments can be re-directed to countries that can produce electronics or transport equipment other than China.

Electrical machinery and electronics equipment sectors could benefit since any redirection of orders will require factories to be reconfigured for these new products, she added.

Mercer-Blackman said that the economies of Korea, Malaysia, Philippines, Thailand, and Vietnam stand to benefit the most in terms of increased GDP because they produce and export goods that compete with products from China.

Korea's GDP could grow by 0.1%, Malaysia 0.07%, Philippines and Thailand (both 0.06% Vietnam 0.04% and Taipei,China 0.03%, the paper saod.

The ADB working paper forecast that the GDP for China could drop to as much as 1 percent and  0.2 percent in the U.S. over a period of two to three years.

The paper took into consideration two scenarios. The study looks at three scenarios: current; a bilateral escalation; and the so-called worse-case.

It also noted that China would take the brunt more than the U.S. as it is more dependent on US demand for its goods.

However, Asia will still be impacted by the trade war, if it continues as re-direction could take time. "Evidence of collateral damage to other Asian economies is emerging, even as exports from the region remain strong. Investors and stock markets are increasingly concerned."

"We are already starting to see the impact of the PRC-US trade conflict on Southeast Asian countries," she said.

 The conflict is causing some broad-based concerns about the future of technology diffusion with most of the semiconductor and hi-tech manufacturing suppliers indirectly affected are located in Southeast Asia.

 Because both China and the US generate two-fifths of world GDP and around a quarter of international trade it is causing a heavy toll on the global economy.

The paper said a trade escalation could hurt advanced economies such as the EU and Japan.

An International Monetary Fund (IMF) report also warned that the trade war is making the world "poorer and more dangerous."

 ADB economist recommended that for those countries that will be negatively impacted by the trade conflict should look at stimulating fiscal spending and monetary policy.

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