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ADB chief says trade war has yet to hurt Asia

But escalation could have 'dire impact' on supply chains, warns Nakao

Asian Development Bank President Takehiko Nakao speaks at the IMF-World Bank forum in Bali on Oct. 10. (Photo by Simon Roughneen)

NUSA DUA -- Asia is not yet feeling the effects of growing trade friction between China and the U.S., due to the internal strengths of the region's "solid" economies, according to Takehiko Nakao, president of the Asian Development Bank.

The trade dispute "is not as damaging right away," Nakao told the Nikkei Asian Review on the sidelines of the International Monetary Fund-World Bank meetings being held in Nusa Dua on the Indonesian island of Bali.

"The Asian economies are solid," Nakao said, but he also warned that any escalation of the tariff war between the world's two biggest economies could hit Asian exporters hard. "If it escalates, if it damages supply chains, as East Asia is connected to [global] supply chains, it could have a dire impact," Nakao said.

The fear is that complex supply chains, in which multinational companies make or source parts for finished goods in countries across Asia before final assembly, often in China, could be disrupted. But for now, domestic demand within Asia's bigger economies could offset the impact of the trade restrictions, Nakao said earlier at the forum.

In September, China published a government blueprint aimed at promoting domestic consumption in sectors such as tourism to try to offset the impact of the trade dispute.

"We have been trying very hard to reorient the economy to domestic demand," Yiping Huang, a professor with Peking University's National School of Development, said at the forum.

There are concerns around the region, however, that if the trade war intensifies and China ramps up its domestic focus in turn, it could hit other developing Asian economies.

"Don't forget that all the success of the East Asia economies over the last the decades was because of the open trading," Sri Mulyani Indrawati, finance minister of host country Indonesia, said later Wednesday.

International Monetary Fund Managing Director Christine Lagarde, left, speaks with Indonesia's Finance Minister Sri Mulyani Indrawati during a seminar in Bali   © AP

Indrawati added, however, that China's economic reshaping could affect countries that are increasingly dependent on trade with the world's second biggest economy.

"The shift of the China economic model into more domestic demand will have a spillover to the region," she said.

The IMF said Tuesday that the new tariffs would hit China and Asian exporters harder than the U.S., estimating the duties could knock 1.6% off China's gross domestic product in 2019, while U.S. losses may reach 0.9% of GDP. In its October World Economic Report, the IMF lowered its global growth forecast for 2018 and 2019 by 0.2 percentage point from its forecast earlier this year for 3.9% growth.

U.S. President Donald Trump on Tuesday repeated a threat to impose additional tariffs on Chinese exports to the U.S., saying China has "already retaliated" through what the Trump administration describes as unfair trade practices and long-standing restrictions on foreign investment.

Last month the U.S. imposed 10% tariffs on Chinese exports worth around $200 billion, and it has threatened to raise those tariffs to 25%, as well as imposing additional duties on another $267 billion of Chinese imports. That would mean almost all Chinese exports to the U.S. would be affected.

China, which exports more to the U.S. than it imports, has hit back with tariffs on about $60 billion of U.S. goods, and could retaliate further by devaluing its currency.

Prominent U.S. economist Jeffrey Sachs said at the forum that Washington's policies were little more than an attempt to disrupt China's economic development, and urged Beijing to push ahead with plans such as the Belt and Road Initiative, a massive pan-Asian infrastructure building program aimed at linking countries in the region to China.

"The United States is trying to stop China's growth. This is about U.S. geopolitics, staying No. 1," said Sachs, who is director of the Center for Sustainable Development at Columbia University.

"All the allegations against China are exaggerated," Sachs told attendees. "I say to China: 'Go for it.'"

But pointing to the discrepancy between China's description of itself as a developing country and its ambitions to be a world leader in advanced fields such as artificial intelligence, Nakao suggested a more nuanced assessment of the current trade tensions.

"We should not just blame Mr. Trump. We should understand why this is happening," Nakao said.

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