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Southeast Asia braces for trade war by bolstering growth

Policy makers across Southeast Asia are bracing for a fallout from a US-China trade war, turning their focus on bolstering their domestic markets to cushion the blow.

China’s proposal Wednesday for an additional 25% tariff on about US$50 billion of US imports ratcheted up the tension between the world’s two largest economies, rocking global markets and keeping officials on guard for ripple effects.

Indonesia Finance Minister Sri Mulyani Indrawati and Bank of Thailand Governor Veerathai Santiprabhob, who are attending a regional meeting of officials in Singapore, said on Thursday the conflict will have global repercussions, even if the direct impact on Southeast Asia’s gross domestic product may be minimal for now.

“The composition of our GDP is mostly fuelled by consumption” and the government is aiming to boost investment to further diversify economic growth beyond exports, Indrawati said in an interview with Bloomberg Television’s Haslinda Amin. She added that the deteriorating trade relations between the US and China and prospects for further retaliation “is not going to serve the interests of both parties.”

US President Donald Trump is attempting to upend the global trade framework, arguing that China’s trade practices are unfair, with alleged violations including intellectual property theft and export subsidies. Indrawati, a former World Bank managing director, said those differences should be dealt with through the World Trade Organization rather than erecting tariff barriers.

Currency Surge

China is the biggest trading partner for many Southeast Asian economies and an important source of investment and tourism in the region. While large domestic markets in Indonesia and the Philippines help to shelter those economies from a trade war, other economies in the region, like Singapore, Malaysia and Thailand, are more reliant on exports.

Indrawati said she’s still optimistic that Indonesia would meet its GDP growth target for this year of 5.4%, a slight pick-up from 5.1% in 2017.

Veerathai said in a separate Bloomberg Television interview that the US-China trade developments are “definitely something we have to monitor very closely” and that retaliatory actions are of great concern, but that so far “the direct impacts have been quite small.”

The central bank has been trying to manage the currency’s appreciation so it doesn’t undermine the competitiveness of exports as the trade environment becomes more challenging. At the same time, it has to avoid being singled out by the US as a possible currency manipulator.


“As the central bank, we have to step in to ensure that the pace of appreciation is not damaging the economy as a whole,” the governor said. “We have to be careful on the impact of currency movement, in terms of volatility and the pace of appreciation on the real sector.”

Malaysia is seeking an exemption from US tariffs on steel and aluminium shipments and to gain clarity on the solar-based equipment penalties, Trade Minister Mustapa Mohamed said in Parliament on Thursday. The government has requested to meet with US trade representatives April 17 to sort out a deal.

Elsewhere in Asia, authorities are also worried about the impact on their economies. Hong Kong Financial Secretary Paul Chan wrote in a blog post Wednesday that the disputes would “inevitably impede relevant trade activities” and also could negatively impact his economy. Last year, China’s exports to the US that were routed through Hong Kong represented about 7% of the territory’s exports, he said.

Joaquim Levy, managing director and chief financial officer at the World Bank, said he’s optimistic the trade disputes will be resolved.

“At the end, people see that there are many ways to get to a win-win situation, so we are confident it will prevail,” he said in a Bloomberg Television interview Thursday. “There is so much scope because trade is something that usually expands your frontiers, so that is the natural way where things should gravitate.”

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