The tit-for-tat trade battle between the United States and China, if it materialises into a full-blown war, will cause disruption to Asean’s growth before anything else.
“Disruption is first order, diversion is second order,” Maybank Kim Eng (Maybank KE) senior economist Chua Hak Bin says, referring to Washington diverting its attention to Asean for trade and investments, as a result of its standoff with Beijing, and vice versa.
Both economic giants recently upped the ante on the trade war which started around the middle of last year, with the United States imposing taxes on billions worth of Chinese goods imported into the US, and China retaliating by levying tariffs on hundred of billions of US imports.
Both countries this week said they will raise the rates of these tariffs, increasing tensions and fears that global growth could be derailed in the process.
Going by simplistic assumptions, Asean should benefit as American companies look for alternative sources of supply to avoid the tariffs, and Chinese firms decide to set up foreign facilities to supply to US colonies in order to avoid the tariffs as well, says Inter-Pacific Asset Management Sdn Bhd CEO Lim Tze Cheng.
“We believe the process already started last year.
“The reason we haven’t seen much development is due to the fact that physical investments will take a while and there is no critical push yet as businesses are waiting for the outcome of the trade war,” Lim adds.
But he concurs that there will “definitely” be short-term disruption to demand, as companies adjust their sourcing preferences.
“In the case of a full-blown tariff war between the United States and China, there will be a short-term disruption to global demand, and thus growth,” Lim adds.