Asia Braces for Trade War Pain as U.S. Threatens New Tariffs
Asia Braces for Trade War Pain as U.S. Threatens New Tariffs
(Bloomberg) -- Asia is bracing for a deeper economic downturn and financial market turmoil after U.S. President Donald Trump announced a new round of tariffs on China.
Japanese Finance Minister Taro Aso said the additional tariffs signal the conflict between the world’s two biggest economies is expanding beyond a trade war. Australia’s Trade Minister Simon Birmingham said the escalation in tension could hurt global growth.
Trump’s planned 10% import tax, expected on Chinese goods from smartphones to clothing, marks the end of a truce that has held since he met with President Xi Jinping in late June.
“During the G-20 meeting in Osaka, we hoped there would be a deal or at least a positive process,” Indonesian Finance Minister Sri Mulyani Indrawati told reporters in Jakarta. “But the signals now are not good. So we need to keep being cautious on the trade war.”
Trade disputes weren’t confined to the U.S. and China. Tension also increased in Asia after Japan removed South Korea on Friday from a list of trusted export destinations, prompting Seoul to say it would retaliate.
Trump’s tariff news led to a sell-off in emerging markets, prompting authorities to pledge action to contain the fallout. Indonesia’s central bank said it would buy bonds and support the rupiah by stepping up its currency intervention. Thailand’s finance minister said the government would announce fresh stimulus this month to offset the trade war’s impact on the local economy.
What Bloomberg’s Economists Say
“Our analysis suggests that tariffs at the current level would mean a drag on U.S. and Chinese GDP of about 0.2% and 0.4%, respectively, with the cost peaking in 2021. Layering on the additional U.S. tariffs, and a proportionate response from China, our initial estimate is that those numbers would rise to about 0.4% and 0.6%.
-- Tom Orlik and Carl Riccadonna
Indonesia’s rupiah was down 0.8% against the dollar as of 1:15 p.m. in Jakarta on Friday, the biggest decline in Asia. The Philippine peso fell 0.3% and the Thai baht was unchanged.
Stocks also declined. Manila-based International Container Terminal Services Inc., which operates dozens of port terminals globally, was down 3.8%.
The U.S.-China tension “can only worsen matters for both countries, the world, and with spillover adverse effects on emerging economies like ours,” Philippines Economic Planning Secretary Ernesto Pernia said by text message Friday.
Officials said the new tariffs may bring benefits to some countries as businesses look to move supply chains away from China. Vietnam has already seen a spike in foreign investment as a result of trade diversion. In Malaysia, Primary Industries Minister Teresa Kok said the higher tariffs could be an opportunity for the local palm industry as Chinese businesses seek alternatives to U.S. soybeans.
But a drawn-out trade conflict would depress the world economy, already forecast for its weakest growth since the global financial crisis a decade ago.
“You have to keep in mind that this is turning into various phenomenon beyond a mere trade war,” Aso told reporters Friday in Tokyo, without elaborating. “You will get it wrong if you view this only as a trade war.”
--With assistance from Claire Jiao, Rieka Rahadiana, Suttinee Yuvejwattana and Viriya Singgih.
To contact the reporters on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net;Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, ;Cecilia Yap at cyap19@bloomberg.net, Michael S. Arnold
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