Fingers crossed for world trade
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Fingers crossed for world trade

In this June 29, 2019, file photo, US President Donald Trump poses for a photo with Chinese President Xi Jinping during a meeting on the sidelines of the G-20 summit in Osaka, Japan. (AP)
In this June 29, 2019, file photo, US President Donald Trump poses for a photo with Chinese President Xi Jinping during a meeting on the sidelines of the G-20 summit in Osaka, Japan. (AP)

It is clear now that the rise of protectionism and the current US tariff war against China and the rest of the world have led to a slowdown in global trade and demand. Since most export-led economies in Asia Pacific depend heavily on demand from China, any slowdown there is bad news.

According to the United Nations Economic and Social Commission for Asia and the Pacific (Escap), trade in Asia Pacific has contracted this year for the first time since the 2009 global economic crisis. Growth could return in 2020, it said, but downside risks from Sino-US trade tensions persist, even with a "phase one" deal due to be signed next month.

The region's total export volume fell 2.5%, while imports decreased by 3.5%. Oil exporting economies such as Iran and Indonesia as well as Japan, Singapore, Hong Kong, and China have registered some of the largest declines in export volume.

The slowdown is especially worrisome in economies closely integrated with China through global value chains (GVCs), the report says.

At the same time, the rise of protectionism has made integration of smaller traders into the global and regional economy through GVCs more difficult. New import barriers increase production costs and reduce the competitiveness of companies participating in regional production networks.

Escap estimated the toll of the tariff wars on GDP could reach as much as US$400 billion worldwide, including $117 billion in Asia Pacific.

The good news is that Washington and Beijing have finally agreed to a truce. Their phase-one agreement avoids a new round of tariffs worth $160 billion that were to take effect on Dec 15. Washington will also cut existing tariffs on $360 billion in Chinese imports. China, meanwhile, commits to buy large quantities of US soybeans, poultry and other agricultural products in return.

But keep in mind that this is only a deal in principle: if Beijing breaks any of its promises, Washington reserves the right to reimpose the tariffs.

The good news, says Escap, is that the new guarantees from the deal might lift investor and consumer confidence enough for trade in the region to grow by about 1.5% in 2020. This growth would be felt more in developing economies, which could see 1.9% and 2.7% growth in exports and imports respectively.

However, country-level forecasts vary widely and uncertainties are high, it warned. At the same time, many analysts believe the trade war will not end anytime soon, as Mr Trump moves into full-on re-election mode beneath the shadow of impeachment.

Even before the US House of Representatives voted for impeachment last Wednesday, the US president's ability to escalate tariffs was under threat.

"It's a question of not when but how [impeachment] will impact negotiations," Henrietta Treyz, director of economic policy at the investment advisory group Veda Partners, told the South China Morning Post last month. "China recognises that Trump doesn't have an unmitigated ability to enact tariffs like he did in the past."

Will Mr Trump be convicted and forced from office by a Republican-led Senate? Absolutely not. Will the drama affect the US position the next time it goes to the negotiating table with China? Most likely. Why? Impeachment could undercut Mr Trump's re-election prospects and further weaken his resolve to raise tariffs, analysts believe.

Americans paid a record $7.1 billion in tariffs in September, up 59% in a year, and the impact from the trade war is increasingly felt by consumers, along with the farmers and factory workers who are Mr Trump's main supporters. He may be motivated to stop the fight with China sooner rather than later if he wants their votes next November.

But, we are dealing with Mr Unpredictable here. He could decide to take an even harder line out of distraction or desperation. China will certainly be contemplating this possibility.

The best that countries in Asia Pacific can hope for next year is the return of global trade and demand from the mainland. Things were looking good when the phase-one pact was announced and Mr Trump said negotiations on phase two would start "immediately".

Now, however he might be too preoccupied with events at home. He might use the deal as a political tool, or he could put a halt to the whole process before it hurts any more of his voters. The problem is that only he knows what will be in his next tweet.

Erich Parpart

Senior Reporter - Asia Focus

Senior Reporter - Asia Focus

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