Coinciding with a recent trade truce between the United States and China to usher in dialogue and trade negotiation, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has released a new report discussing the impact of a full-blown trade war and charting potential policy responses in the region to withstand the headwinds.
The Asia-Pacific Trade and Investment Report (APTIR) 2018 notes an accelerated imposition of restrictions on trade in goods and services, and more reservations on foreign direct investment (FDI). The United States-China trade tensions have also begun to disrupt existing supply chains and dampen investor confidence, as evidenced by the deceleration in trade growth after the first half of 2018. If the trade tensions remain, export growth may slow to 2.3 per cent in 2019, compared to a nearly 4 per cent growth in export volume in 2018. FDI inflows to the region are also expected to continue in their downward trend next year, following a 4 per cent drop in 2018.
Tariff hikes that have already taken place are expected to cut global gross domestic product (GDP) by USD150 billion, and regional GDP by a little over USD40 billion if they remain. Importantly, as many of the main export industries in the region are relatively labour-intensive, a contraction of export could spell at least temporary hardship for many workers. At a minimum, Asia and the Pacific will see a net loss of 2.7 million jobs due to the trade war, with unskilled workers – often women – shouldering more severe impact.
The report finds that if the tariff war escalates further in 2019 and investor and consumer confidence drop, global GDP could ultimately be cut by nearly USD400 billion, also driving regional GDP down by USD117 billion. Almost 9 million people could be put out of work in the region, with many more workers also moving to new jobs in different sectors.
As trade frictions reshape global value chains (GVC), winners and losers in the region are likely to emerge. Based on research, South-East Asia is well positioned to benefit in the medium term. Vietnam in particular, is poised to take over some GVC activities from China. However, “GVC redirection and trade flows induced by trade tensions are not optimal, nor stable. It’s probable that investors will postpone at least some investments till policy uncertainties decrease,” said director of the Trade, Investment and Innovation Division at ESCAP Ms Mia Mikic.
“As production shifts take place and resources are reallocated across sectors and borders due to the trade conflicts, tens of millions of workers may see their jobs displaced and be forced to seek new employment. Regional integration will be important to create new economic opportunities. But other complementary policies, such as labour, education and retraining policies plus social protection measures to support people negatively affected must also be placed high on the policymakers’ agenda if the region is to continue making progress towards the Sustainable Development Goals,” she added.
The report highlights that neither China nor the United States can win a trade war: both will see significant economic losses from continuing conflict. It also finds that implementation of mega-regional trade agreements such as the Regional Comprehensive Economic Partnership, among ASEAN and its six partners, could offset much of the economic losses from trade tensions. ESCAP estimates that implementation of mega-regionals could boost exports by 1.3 to 2.9 per cent and add 3.5 to 12.5 million jobs in employment for the Asia-Pacific. Therefore, APTIR 2018 underscores the importance of regional cooperation and calls on countries to take advantage of all existing initiatives, including the new UN treaty aimed at digitalising trade procedures and enabling cross-border paperless trade in Asia and the Pacific.