The impact of trade tensions on the region

Amid protracted trade tensions between China and the US, chief economist John Greenwood shares his views on what is happening to China’s and regional economies.

Oct 25, 2018 | John Greenwood

China’s central bank recently cut some banks’ reserve requirements to boost lending. This came amid the country’s months-long trade dispute with the US, exchange-rate uncertainty, and slower GDP rates. In his latest comments, chief economist John Greenwood goes behind the numbers and figures to explain what is happening to Asia’s largest economy.

On the trade-dispute front, observers are beginning to notice some tangible impact in the Asia-Pacific region and the US. Greenwood notes that despite the intensifying tensions, China’s total exports increased by 14.5% year-on-year in September, defying market expectations of a slowdown. He sees the strengthening of global demand and a softer Chinese yuan as drivers of the record trade surplus of US$34.1 billion that China clocked with the US in September. In the longer term, he views the tariffs as a catalyst for China to shift more rapidly into higher value-added activities, similar to what Japan did when the US imposed quotas and other restrictions on Japanese goods in the 1970s and 1980s.

As for exchange-rate uncertainty, Greenwood thinks that rising interest rates will continue to push the US dollar higher against Asian currencies, but he cautions that it is still too early to tell if these fluctuations will exacerbate trade woes. Normally, it takes up to two years for price and volume effects from currency depreciation to be fully reflected in exports and imports, says Greenwood. Strengthening global activity also provide additional support for Asian export growth.

 

For a more detailed read of Greenwood's comments, click on "Download PDF"

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