World Bank: Malaysia better off having trade agreements with both US, China

World Bank chief economist for East Asia and the Pacific Aaditya Mattoo

KUALA LUMPUR: Malaysia is better off having trade agreements with both China and the United States (US) rather than being left out of any agreement or being part of an exclusive trade bloc, said the World Bank Group.

World Bank chief economist, East Asia and Pacific Region Aaditya Mattoo said the US economy is expected to grow at a slower rate this year, while China is expected to grow at a faster rate of 5.1 per cent this year, up from three per cent last year, with the latter’s growth offsetting the negative impact of slower growth in the US.

"To some extent, this drawing apart (US-China trade war) might have benefits. For example, a country has been able to step into China’s shoes by exporting more to the US market. It is importing more from China and exporting more to the US,” he said during the World Bank East Asia and the Pacific Economic Update April 2023 report webinar today.

Mattoo said trade tensions between the US and China, who are each other’s largest trading partners, are shifting trade towards third countries.

The World Bank Group reported that the Regional Comprehensive Economic Partnership (RCEP) trade agreement has helped deepen much of the region’s integration with China, while the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was meant to but failed to achieve integration with the United States and the proposed Indo-Pacific Economic Framework is not meant to be a traditional trade agreement.

Mattoo said empirical analysis suggested both the RCEP and CPTPP together could more than offset global losses due to the US-China trade war, but not the individual losses of China and the United States, which risk becoming "spokes” because of the growing economic distance between them.

He said the economic update also pointed out that after the US and China imposed trade restrictions on each other, exports from both countries to some East Asia and Pacific economies, including Malaysia, increased.

"However, there are four problems. Firstly, uncertain politics rather than reliable economics and predictable trade routes are now holding trade patterns, and that leads to a less certain policy environment, and that uncertainty can actually inhibit investment. Secondly, a shift from rules-based to more politically motivated trade is less good for long-term growth and investment.

"Another issue will be divergent standards, for example, on data governance, which could lead to segmented markets, and so the scope for third countries to exploit economies of scale in an integrated global market gets caught.

"Lastly, export restrictions not just on bilateral trade but on where, for example, semiconductors will eventually be sold, or products which incorporate semiconductors from one country will be eventually sold, or the ultimate source of inputs and current products that will be imported,” he added.

Mattoo emphasised that these types of restrictions could significantly disrupt trade, especially in a region which is deeply integrated with global value chains and but also deeply integrated into global value chains, both with the US and China.

He also said that the trade tensions between the US and China created challenges for third countries in terms of retreating from globalisation or the trade divisions or tensions we see within reach across the region’s most important trading partners.

"The best response is to reform one’s own trade policies to reduce one’s own trade costs. It is better to do that, and welfare and development in these countries are likely to be higher than if they try to retaliate or imitate the policies of these other countries.

"It’s not just about what you do on your own. It’s what you can do in cooperation with other countries,” he said.

Mattoo said it would be better for countries to not join the US or China exclusively.

"Taking CPTPP as an example, I think one of the challenges for the region is to forge a similar deeper relationship with the US, and in general, ideally with the whole world through a revival of the multilateral system.

"But until that happens, the best policies for the countries are both to maintain good policies at home and be open to trade cooperation,” he added. - Bernama

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World Bank , CPTPP , RCEP , Malaysia , US , China , trade war


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