Trade War Is Risk for Export-Led Southeast Asia, World Bank Says

(Bloomberg) -- The World Bank warned that a trade war between the U.S. and China will hurt economies in Southeast Asia since they rely on exports for growth.

Many countries in the region will feel “knock-on effects” of rising tariffs because they are tied to supply chains that feed into Chinese exports, Sudhir Shetty, the World Bank’s chief economist for East Asia and Pacific region, told reporters in Jakarta on Thursday.

“A lot of those, although they may finally be assembled and put together and exported as Chinese products, are the result of a value chain that stretches across this region, particularly in some of the larger” Southeast Asian economies, he said.

“The success of this region is based on open trade, it’s based on the development of these value chains that over the last decade or so have increasingly centered on China,” he said.

The world’s two biggest economies have threatened to impose tariffs on each other’s exports, clouding the outlook for global trade and growth. Chinese President Xi Jinping on Wednesday pledged to further open up some sectors in the economy, helping to ease some of the tension.

Shetty said the impact of the tariffs would be felt greatest on the U.S. and China, and growth in advanced economies, including the U.S., could slow.

Exports are already faltering in some economies with shipments falling in Malaysia and the Philippines in February from a year earlier.

"Nobody actually will stand to gain in a trade war,” J. Jayasiri, Secretary General of Malaysia’s Ministry of International Trade and Industry, said in an interview on Wednesday. “Today, trade is so interdependent and Malaysia, being a small market, we look to the global market.”

“We are also part of the whole supply chain - we export parts and components to both China and the U.S.,” he said in Kuala Lumpur. “When our parts and components are in the products that are subjected to high tariffs in each other’s markets, there will be less opportunity for our parts and components to be exported to those markets.”

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