Avoiding trade-war fallout

The United States and China ended their latest round of trade talks in Washington on a hopeful note last week, but negotiators are still racing against a March 1 deadline when US tariffs on US$200 million in Chinese goods will rise unless a deal is reached.

It was the second round of talks since presidents Donald Trump and Xi Jinping met in Argentina in November and agreed to negotiate in the hope of defusing an escalating tariff war. However, Treasury Secretary Steven Mnuchin has conceded that "complicated issues" remain to be resolved in the six-month trade war that has weakened both sides, shaken financial markets and clouded the outlook for the global economy.

Mr Trump sounded more upbeat, saying he planned to meet his Chinese counterpart soon to try to seal a comprehensive trade deal. However, no specific details were forthcoming.

But a new complication has injected itself into US-China relations now that the Justice Department has brought criminal charges against the Chinese tech giant Huawei, accusing it of stealing technology secrets and violating sanctions against Iran. Beijing shot back by demanding that the Trump administration pull back from what it called an "unreasonable crackdown" on the Chinese company.

Until we see a Trump-Xi handshake, fear will persist of a US-China confrontation dragging down the global economy this year. China is feeling some effects already but the manufacturing sector seems to be resilient so far, and the government is rolling out more policies to support domestic demand, especially tax cuts, to cushion the impact on economic growth.

The United Nations forecast recently that growth in China should remain solid, but will ease to 6.3% this year from 6.6% in 2018. US tariffs will dampen exports, while ongoing economic rebalancing will weigh on industrial sectors with excess capacity.

What about Asean? What can we can do to safeguard ourselves from macroeconomic headwinds? So far, East and South Asia remain the world's most dynamic regions, but obviously risks are increasing. Growth in East Asia is projected to moderate to 5.6% this year from 5.8% in 2018, before sliding further to 5.5% in 2020. The UN said private consumption, supported by healthy job creation, would be key growth drivers.

In most countries, infrastructure investment is also expected to remain strong as governments focus on expanding productive capacity and easing bottlenecks. The region's export growth, however, is likely to slow, amid a softening of the global electronics cycle and elevated trade tensions.

To partly offset any trade downturn, Asean should focus on improving intraregional flows of goods and services. In this regard, it's essential to make it easier for goods and services to cross borders. Despite all the talk of regional integration, this is not always the case.

Yea, there is a region-wide scheme that allows qualified exporters to self-certify the origin of their products. And the Asean Single Window, which digitises intra-Asean trade documents, began operating in Indonesia, Thailand, Vietnam and Singapore early last year.

But more needs to be done. Expanding the single window to all 10 regional economies will help, along with standardising the cost and time of customs clearance. Free movement of professionals across the region is also vital but nearly every country still puts up roadblocks to protect certain groups.

Meanwhile, Asean should try harder to attract inbound investment, especially to countries where supply chains are expected to grow in the future such as Thailand and Indonesia. That means offering reasonable production costs, clear and stable regulations, better technology innovation, cutting tariff and import barriers and upgrading labour skills.

Expanding free trade agreements will be critical to attract investment. Bringing new members into the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and concluding the long-overdue Regional Comprehensive Economic Partnership (RCEP) will strengthen Asean's appeal in the eyes of investors from outside the region.

At the same time, Asean has to press forward with the e-commerce agreement its leaders announced last November, and invest more in digital connectivity. That would enhance trust and confidence in cross-border transactions and in turn facilitate more regional collaboration to drive economic growth.

This will require more investments in regional electronic payment infrastructure, further enhancing cross-border movements of businesses as well as cooperation on cyber security to strengthen consumer confidence.

We can turn crisis into opportunity by making further reforms to ensure greater sustainability across the region. Then when the outside dust settles, Asean will be the one that reaps the most benefits, I believe.

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