The US-China trade war is the biggest risk to the Asian economy, with the prolonged conflict threatening to “undermine investment and growth in developing Asia”, the Asian Development Bank has said.
The bank’s chief economist Yasuyuki Sawada downgraded his growth forecasts for the region to 5.7 per cent this year and 5.6 per cent next year, down from 6.2 per cent in 2017 and 5.9 in 2018.
The Asian Development Bank (ADB) report, launched in Hong Kong on Wednesday, cited “uncertainties stemming from US fiscal policy and a possible disorderly Brexit” as issues that could act as a net drag on regional growth with Asia full of export-dependent economies that is exposed to fluctuations in global demand more than any other region.
“The largest risk we identified is still centred on the trade conflict. Prolonged negotiations are the biggest risk.”
The report was launched a day after the World Trade Organisation (WTO) also blamed the trade war for a tumble in global trade growth.
The Geneva-based institution slashed its forecasts for global trade growth for 2019 and 2020 after slower than expected growth in the trade of goods in 2018.
WTO economists expect merchandise trade volume growth to fall to 2.6 per cent this year, down from 3 per cent last year. Should trade tensions ease, the WTO forecasts 3 per cent growth again in 2020, but otherwise it will remain sluggish.
In September, the WTO forecast 3.9 per cent trade growth in 2018, but revised the growth figure after trade tensions continued.
The ADB expects that China’s economic growth will slow to 6.3 per cent this year and 6.1 per cent next year.
Region-wide, it has tracked volatility in trade and manufacturing since the trade tensions began in January 2018, when the first tariffs on steel, aluminium, washing machines and solar panels were introduced.
The global purchasing managers’ index, an indicator of the health of global manufacturing, has been in downturn since that point. World trade volume growth has suffered a number of extreme dips, most notably in January 2019, when it dropped into negative territory for the first time in three years.
And while part of the story is the end of a worldwide growth cycle, buoyed by US equities markets and healthy developed world demand, the trade war has played a key part in the downturn, particularly the uncertainty it brings to investors, Sawada said.
His views echoed those of the WTO director general, Roberto Azevêdo, who said: “With trade tensions running high, no one should be surprised by this outlook. Trade cannot play its full role in driving growth when we see such high levels of uncertainty.”
He added that it was “increasingly urgent that we resolve tensions” and urged WTO members to find ways to “strengthen and safeguard the trading system”.
“If we forget the fundamental importance of the rules-based trading system we would risk weakening it, which would be an historic mistake with repercussions for jobs, growth and stability around the world,” Azevêdo added.
Negotiators from the United States and China will meet again in Washington this week in a bid to hammer out the final details of a deal that would end the prolonged trade war.
Chinese Vice-Premier Liu He is already in the US preparing for the talks, where he is expected to meet with US trade representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin on Wednesday and Thursday.
It is understood that both sides are hopeful that an agreement in principle can be shaped this week, with US President Donald Trump and Chinese President Xi Jinping then expected to finalise it before the end of April.
However, the main stumbling block appears to be around enforcement, with US negotiators reportedly keen to maintain the right to reimpose unilateral tariffs on China should it be perceived to breach the deal.
Beijing, in an apparent olive branch to Trump’s team, announced on Sunday that it would refrain from raising tariffs on vehicles imported from the US from 15 per cent to 25 per cent. The higher tariff was introduced as a retaliatory measure in July 2018, but suspended for three months in January as negotiations progressed.
China also bought 828,000 tonnes of US soybeans ahead of the talks and moved to ban all variants of fentanyl, which are expected to be in place by the end of May. This could disrupt the flow of a potent opioid which has been responsible for thousands of deaths in the US.