There’s no escaping the impact of the US-China trade war, even for countries that stand to benefit from it in the short term, Asia-Pacific Economic Cooperation (Apec) Secretariat Executive Director Alan Bollard said.
“The models show a certain amount of trade diverts out of China to Northeast Asia or Southeast Asia,” Bollard said in an interview in Port Moresby, Papua New Guinea. “So they get positives in the short term. But in the medium term, there’s quite a significant impact from uncertainty and from trade distortion; so things getting produced in more expensive locations than they otherwise would be.”
Finance officials from the 21 APEC countries gathering this week in Papua New Guinea are discussing the outlook for the region against the backdrop of financial market volatility and a deepening China-US trade war. Last week’s meeting of finance chiefs in Bali hammered home the message that simmering trade tensions are already denting global growth and need to be resolved.
There is some optimism, with APEC expecting that there won’t be an escalation in the trade war and that the impact will be small as domestic demand remains robust.
“We’ve just been talking about economic forecasts and risks in the region and the region is still growing strongly,” Bollard said on Wednesday. “Trade driver is playing a little bit less of a role and it’s more domestic demand drivers.”
Trade data in the fourth quarter will give more clues as to whether trade flows will
remain resilient, he said.
“Trade flows have generally held up, but there is a possibility that what we are seeing is an increase in inventories,” Bollard said. Buyers may be building up stock before they get hit by tariffs or may be concerned about availability of certain products, he said.
Mounting debt, particularly those of non-financial companies and households, also pose a risk, Bollard said.
“We see a number of east Asian economies starting to build up debt levels to what is more common to the West,” he said. “Those look manageable unless there is a significant shock from faster-than-expected monetary tightening in the US and some developed economies.”