Speaker 1: US President Donald Trump announced what he calls reciprocal tariffs
Speaker 1: in April on dozens of America's largest trading partners. After
Speaker 1: the biggest market sell off since the COVID nineteen pandemic.
Speaker 1: Trump put them on pause for everyone but China. Since then,
Speaker 1: the administration has announced temporary reprieves for a number of
Speaker 1: important items like smartphones and other electronics. But the risk remains,
Speaker 1: and it seems that Asia's economic outlook hangs in the balance.
Speaker 1: You are listening to Asia Centric from Bloomberg Intelligence. I'm
Speaker 1: Katydmitrieva in Hong Kong, and today we're unpacking a lot,
Speaker 1: but the risks of Trump tariffs to Asia, where countries
Speaker 1: go from here everything. I'm joined today by Frederick Newman,
Speaker 1: chief Asia Economist at HSBC and co host of another
Speaker 1: podcast you should probably be listening to. If you're listening
Speaker 1: to this one called Under the Bandry, it's all about
Speaker 1: Asia economics and markets.
Speaker 2: Welcome bread, Oh thank you, Katya. It's such an honor
Speaker 2: to be here. I listened to this podcast all the
Speaker 2: time religiously, so this now, I guess I'm gonna hear
Speaker 2: myself when I go out for a run.
Speaker 1: We paid him to say that. So, first of all,
Speaker 1: I wanted to take a step back, because of course
Speaker 1: there's been so many moving pieces just in the past
Speaker 1: couple of weeks, but to just back to basics. What
Speaker 1: are tariffs generally, who pays them, and what are the
Speaker 1: economic effects.
Speaker 2: So terrrists are a very old tool in the global toolbox.
Speaker 2: So it was quite common in the eighteenth century, nineteenth century,
Speaker 2: and twentieth century, and then we did away with them
Speaker 2: more or less over the last seventy years or so.
Speaker 2: Gradually they were reduced, and now they're back. They're back
Speaker 2: in big time, in a big way, a big way. Yeah.
Speaker 2: And so essentially it means that US customs will charge
Speaker 2: a fee for every good that comes into the United
Speaker 2: States from China. And who pays for this is a
Speaker 2: is a controversial question because it is a bit controversial. Yeah,
Speaker 2: So I think in practice it's of course, if you
Speaker 2: want to buy that good as a US consumer, you'll
Speaker 2: pay more for it because you know there is a
Speaker 2: that teriff on it. It's a tax. But you might
Speaker 2: not pay the full amount of that tax because the
Speaker 2: seller in China, say, might also want to incentivize you
Speaker 2: to buy it, might cut the prices to get the
Speaker 2: deal done. So there might be a little bit of
Speaker 2: a burden that falls in the Chinese export, a bit
Speaker 2: on the US importer US consumer. But generally speaking we
Speaker 2: say that the importing country pays more of the tax.
Speaker 2: That's generally the case, but how much is obviously up
Speaker 2: to debate. But you could probably say that US prices
Speaker 2: will go up as a result, at least until the
Speaker 2: US can produce these goods themselves.
Speaker 1: And what kind of timeline are we talking about here, Like,
Speaker 1: is it the case that once these things are announced, companies,
Speaker 1: You know, I've been talking to companies already implementing some plans.
Speaker 1: When it comes to tariffs, I mean, how soon could
Speaker 1: we be seeing these effects, both on the inflation side
Speaker 1: but also on Asia. Here in Asia very very quick.
Speaker 2: So the terriffs are most of them are in effect already,
Speaker 2: and that means that any container comes into the United
Speaker 2: States today you have to pay these tariffs. And we
Speaker 2: only have about inventory in the US for a few weeks,
Speaker 2: so you can see that you might want to draw
Speaker 2: down the existing inventory. But once the shelves are empty,
Speaker 2: you need to replenish them with new goods from overseas,
Speaker 2: and of course that's when you then start to raise prices.
Speaker 2: So in a matter of weeks you could see higher
Speaker 2: prices for some essential items. And that's actually why some
Speaker 2: of the producers rushed goods before the deadline to the US. Reportedly,
Speaker 2: you know, there were Boeing seven or sevens were being
Speaker 2: chartered to bring in goods into the United States just
Speaker 2: under the deadline. But of course that inventory will be
Speaker 2: absorbed quite quickly, and then of weeks you see price
Speaker 2: essentially go up.
Speaker 1: You know, we, like you said, tariffs have been in
Speaker 1: place before. That's nothing new, but I guess the size
Speaker 1: and scope of these particular tariffs. We were just talking
Speaker 1: before we start recording about how fast paced everything has been.
Speaker 1: I mean, how significant is all of this for both
Speaker 1: businesses and government officials trying to run their economies.
Speaker 2: We really haven't seen this in decades, right, So we
Speaker 2: have to go back to the nineteen seventies on the
Speaker 2: Nixon presidency, there was a ten percent tariff there was
Speaker 2: in post, but only for four months and then got
Speaker 2: taken off again. Now we're talking much higher tariffs ten
Speaker 2: percent in most countries, but on China, of course, it's
Speaker 2: well of one hundred percent one hundred and forty percent,
Speaker 2: and so these are much much bigger terrfs. So we
Speaker 2: have to go back to the nineteen thirties to see
Speaker 2: a similar level of terrorfs in the United States. And
Speaker 2: back then when these teriffs were imposed, it took about
Speaker 2: two years that were gradually brought in. They weren't brought
Speaker 2: in sort of immediately from one week to another. It's
Speaker 2: not just the level of these terrorsts, which are quite high,
Speaker 2: but also the speed with which you're implemented is also
Speaker 2: we haven't really seen that any decades. We would say, how.
Speaker 1: Does that make it your life difficult? In terms of forecasting,
Speaker 1: I mean, do you just do a bunch of scenario analysis?
Speaker 1: Like how do you actually forecast this?
Speaker 2: Yeah, scenarios is one thing. First of all, you have
Speaker 2: a good understanding of how the global economies interconnected, how
Speaker 2: exposed individual countries are to the US market, to exports,
Speaker 2: how consumers might behave for different goods when prices increase,
Speaker 2: and so you have to make some you know, basically
Speaker 2: framework analysis, and then you start to talk about scenarios. Okay,
Speaker 2: we know what's happened now with terrorists. This can mean
Speaker 2: this for the economy. We know that probably Chinese growth
Speaker 2: will fall, we know US inflation will go up. We
Speaker 2: can kind of have a guess of that. But then
Speaker 2: scenario analysis when it comes to what might change, because
Speaker 2: this is still a moving target. So the forecasting is
Speaker 2: not just estimating the but also trying to guess what
Speaker 2: else might change in the coming weeks. And here that's
Speaker 2: the exhausting part because things seem to be changing every
Speaker 2: twenty four hours and so you start to retweak your models.
Speaker 2: And that's what scenario analysis comes in, trying to predict
Speaker 2: what policy will be because terrorists could be unwound again,
Speaker 2: they could be raised again, so there's a lot of
Speaker 2: interplay that you have to kind of make some assumptions around.
Speaker 1: So a scenario, the reciprocal tariffs or whi Trump is
Speaker 1: calling reciprocal tariffs were announced, they were paused. Let's say
Speaker 1: they go in what will be the impact on Asia?
Speaker 2: So there were only paused on other Asian countries, there's
Speaker 2: still apply to a large effect on China, right, and
Speaker 2: so that already matters because if one country receives terrorists
Speaker 2: but others much smaller terrors, then the ones that receive
Speaker 2: smaller terrors aren't as impacted because they can take market
Speaker 2: share from the large economy that has much higher terror.
Speaker 2: So in this case, for example, because you see China
Speaker 2: having large terraffs, but say Vietnam as smaller terrors, actually
Speaker 2: Vietnam might not be as negatively impacted because they are
Speaker 2: now more competitive than China is in terms of selling
Speaker 2: into the US market, so you have to take that
Speaker 2: into context as well. Nevertheless, there is no real winners
Speaker 2: from these terrors. Ultimately, you would expect that growth in
Speaker 2: Asia will slow and probably slow by you could say
Speaker 2: half a percentage point or percentage point, which is quite
Speaker 2: significant actually, just from the impact of trade. And then
Speaker 2: you have to add things like the impact on investment
Speaker 2: because which company will want to invest not knowing what
Speaker 2: future terrors look like. Then you have to look at
Speaker 2: the impact on financial markets and how consumers might feel
Speaker 2: if stock markets go down. So then you could say, well,
Speaker 2: the impacts WEB could be potentially larger than that could
Speaker 2: be up to a percentage point. From most countries in
Speaker 2: Asia and the region, there are some differences. Their economies
Speaker 2: like Vietnam are much more exposed because they're manufacturing driven.
Speaker 2: They expert a lot to the US. Their economies like
Speaker 2: the Philippines, for example, it doesn't sound that many manufactured
Speaker 2: goods to the US. So it's a bit of a
Speaker 2: difference here. But by and large, half a percentage point
Speaker 2: to percentage point in growth is already a fairly large
Speaker 2: hit to growth. That's a growth shock, we would call
Speaker 2: in economics. And that's enough to then essentially lead us
Speaker 2: to worry about our recession and looking for interest rate cuts,
Speaker 2: for example, by policy to help to cushion the impact.
Speaker 1: Because you use the red recession. How likely is that
Speaker 1: to come from the tariffs? Again, we don't know after
Speaker 1: this ninety day pause sort of what the shape of
Speaker 1: those tariffs will be, if there will be carve outs exemptions,
Speaker 1: But let's assume that that level is put into place
Speaker 1: as has been announced. I mean, how high does the
Speaker 1: percentage chances of a recession go? What is the risk
Speaker 1: of a recession in some of these countries or even
Speaker 1: in the region in general.
Speaker 2: Or some countries it is higher than for others. And
Speaker 2: that's because some countries have a lot of domestic growth
Speaker 2: and so the export the slowd on doesn't matter that much.
Speaker 2: So if you take India, for example, India doesn't export
Speaker 2: that much, but it's a big giant economy in itself,
Speaker 2: and so there will still have some growth even it
Speaker 2: slows down. But then you look at an economy like Korea,
Speaker 2: for example, you look economy like Japan which has both
Speaker 2: have very low growth anyways, and so a percentage point
Speaker 2: reduction could tip them into potentially recession. So the recession
Speaker 2: risk there is much much higher than that. But we
Speaker 2: should also say that the recession risk in the US
Speaker 2: is not zero as well, and if there is a
Speaker 2: recession in the US as a result of that, then
Speaker 2: the recession risk in other parts of Asia goes up
Speaker 2: even more because of course, US recession means the US
Speaker 2: will buy fewer goods in general, not just be the terrorists,
Speaker 2: but also because demand slows. So we're watching very closely,
Speaker 2: for example, what happens to the US as well here.
Speaker 2: But bottom line is probably we can narrowly avoid in
Speaker 2: most countries, but not in all of the countries in Asia.
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Speaker 1: It just strikes me as this trade war is quite
Speaker 1: different from the first trade war under Trump one point
Speaker 1: zero if you want to call it, because there were
Speaker 1: winners in that. There were winners in the Forum of Vietnam,
Speaker 1: which took some of the market share, and a lot
Speaker 1: of Chinese US companies ended up moving there. I mean
Speaker 1: you said earlier there won't be any winners this time,
Speaker 1: but could there be kind of new countries emerging as
Speaker 1: potential manufacturing zones if they have a lower tariff.
Speaker 2: There could be the reason. And I think you hint
Speaker 2: at this rightly that it feels different this time than
Speaker 2: last time, and for two reasons. One is a tariff
Speaker 2: so much higher that's from China, for example. But the
Speaker 2: other thing is that we don't have clarity as to
Speaker 2: what future teriffs will be. So if you think about Vietnam,
Speaker 2: for example, we don't know whether in three months from now,
Speaker 2: Vietnam might have fifty percent terif or ten percent tariff
Speaker 2: because there's a lot of uncertainty, and so that really
Speaker 2: means that Vietnam can't fully capture that opportunity because we
Speaker 2: don't know what the future trade regime is. So we
Speaker 2: talk in the economics a lot about uncertainty matters enormously, right,
Speaker 2: and so if you have that uncertainty, then everybody is
Speaker 2: going to hold back investing in any country because they
Speaker 2: don't know where they'll be. That country will be hit.
Speaker 2: And so you could then say winners only merge once
Speaker 2: it becomes clear what the future trade policy will be,
Speaker 2: and that could happen maybe in a few months from now,
Speaker 2: when we get a much clearer sense Okay, this country
Speaker 2: received terrors, those countries will not. Maybe they strike a
Speaker 2: deal with the US and that deals give certain and
Speaker 2: then we can talk about winners. And so picking winners,
Speaker 2: if you will, is partly a political question. So which
Speaker 2: country can strike a deal with the US that gives
Speaker 2: it certainty as to the future trade relations. So it's
Speaker 2: not an economic question as much as a political question.
Speaker 2: And so we look at we know that India and
Speaker 2: Japan and Vietnam negotiating with the US proposing deals other
Speaker 2: countries as well, and who will emerge there with a
Speaker 2: deal that we have to see. But you're right, Once
Speaker 2: you have a deal in place and there's certainty, then
Speaker 2: investors companies can say we're putting money into this country
Speaker 2: because we know we have some certainty as the terrors,
Speaker 2: and then you'll see that investment come in and the
Speaker 2: country can really capitalize on it. But we're not at
Speaker 2: that stage yet.
Speaker 1: Yeah. Really, the only country where we do have some
Speaker 1: certainty is probably China. But it's certainty to the negative.
Speaker 2: In other words, yeah, that's certainty. That's the wrong type
Speaker 2: of certainty. Although even there, I think that it's still
Speaker 2: fluid because you might even see some sort of deal
Speaker 2: being struck between China and the US. It's not inconceivable, right.
Speaker 2: We know we had a deal in the first Trump administration,
Speaker 2: is so called Phase one deal. Even here there could
Speaker 2: be potentially both sides say, you know what, this is
Speaker 2: a bit extreme what we did. Let's wiggle it down
Speaker 2: to say fifty percent terrors, and that would change things
Speaker 2: quite a lot for the business outlook for China as well.
Speaker 2: So I would say even with China, it's not clear
Speaker 2: yet this is locked in place.
Speaker 1: Is it also your sense that this isn't necessarily the
Speaker 1: death blow to China's economy either. I mean, you guys
Speaker 1: actually talked about this recently on your podcast and you
Speaker 1: had your China economist on discussing this very point. The
Speaker 1: tariffs as they're announced right now, which are very high.
Speaker 1: You know, they're one hundred and forty five percent plus
Speaker 1: the twenty percent from the previously implemented, so this year
Speaker 1: one hundred and forty five percent were added. But what
Speaker 1: would that do to China's economy this year? Because there's
Speaker 1: a sense that it doesn't necessarily spell disaster. Yeah.
Speaker 2: So China's economy, we have to remember, is very big,
Speaker 2: and it's actually quite domestic. And so when we look
Speaker 2: at putting all exports together go to the United States,
Speaker 2: what share does it make up of China's economy, And
Speaker 2: it turns out is only roughly two point five percent.
Speaker 2: There's a bit of a discussion around the numbers, but
Speaker 2: you could say it's you know, maximum three percent, maybe
Speaker 2: anywhere besieon two and three percent, which is a large
Speaker 2: number of that would to disappear overnight. Then of course,
Speaker 2: your economy with three percent smaller two and a half
Speaker 2: percent smaller. You're growing at five percent, so you could
Speaker 2: say you'd still got some growth, but it would have
Speaker 2: your growth rate. So from that perspective, it's not really
Speaker 2: the end of the world. It just comes at a
Speaker 2: very awkward time for China because domestic demand is very,
Speaker 2: very weak. We have a real estate market there that's
Speaker 2: a bit wobbly, we have consumers are a bit sluggish
Speaker 2: at the moment. So it's manageable for the Chinese economy
Speaker 2: in the long run. They can live without access to
Speaker 2: the US market. So it's probably a bigger deal for
Speaker 2: some of the smaller Asian economies if they were to
Speaker 2: receive the same amount of terrorists as China received, because
Speaker 2: their exports are much more important part of their economy.
Speaker 2: They don't have the domestic kind of depth, if you will,
Speaker 2: the big consumer market one point four billion consumers. So
Speaker 2: it's a challenge for China, but it's as you say,
Speaker 2: it's not sort of terminal for the economy. It has
Speaker 2: ways of kind of grinding through that.
Speaker 1: And they are focusing more on the consumer this year,
Speaker 1: and ironically, Trump's policies maybe forced policy makers in China
Speaker 1: to speed that process up.
Speaker 2: Yeah, that's right. And actually, you know, if you talk
Speaker 2: to economists over the least ten years or so, many
Speaker 2: would have said that there is an emerging imbalance in China.
Speaker 2: And what they meant by this is that to say
Speaker 2: China was very reliant on investment and exports and less
Speaker 2: reliant on domestic consumption, and that there was always this
Speaker 2: idea that they had to rebalance away from exports investment
Speaker 2: towards consumption because it was just getting too out of whack. Now,
Speaker 2: the Chinese policy makes have tried to push in that direction,
Speaker 2: but it never really worked. And so now we could
Speaker 2: say here with a terrorist, now comes a big opportunity
Speaker 2: to actually implement these policies that will kind of really
Speaker 2: energize domestic consumption. And so in some ways we might
Speaker 2: come out at a better place for China because some
Speaker 2: of the reforms that many people hoping for China might
Speaker 2: not be accelerated because there's this external constraint. You can
Speaker 2: no longer export as much, and so you need to
Speaker 2: think more about where else could growth come from, and
Speaker 2: this could energize sort of the switch towards domestic consumption.
Speaker 2: That's at least a hope where it will happen that.
Speaker 2: That's of course a different question, but that's good of
Speaker 2: the hope. I think that would be the positive story
Speaker 2: emerging out of this.
Speaker 1: So why is that important? You know, we've talked a
Speaker 1: lot about this on the podcast, about this shift, But
Speaker 1: why is it important for an economy, especially China, to
Speaker 1: pivot towards that consumption model and away from this sort
Speaker 1: of over alliance on.
Speaker 2: Trade tennessee armously normsly successful. I mean, no other economy
Speaker 2: has in a few decades really delivered that type of
Speaker 2: growth and prosperity and lifted people out of poverty amazing.
Speaker 2: But in large part this was done by prioritizing investment,
Speaker 2: so very high investment rates, and that investment, of course
Speaker 2: produces goods, and there were so many goods being produced
Speaker 2: at that the doromestic consumption wasn't big enough to absorb them,
Speaker 2: so you had to export them to the rest of
Speaker 2: the world. The problem now is that the rest of
Speaker 2: the world is no longer there to buy all these goods.
Speaker 2: It's not big enough. So now this growth model is
Speaker 2: running a little bit into constraints. You can't just keep investing, investing, investing,
Speaker 2: and keep your consumption low, you need to essentially now
Speaker 2: say okay, we've invested enough, we slow down our investment,
Speaker 2: but now we start to buy our own goods essentially
Speaker 2: from the investment stock we've built up, because otherwise you
Speaker 2: can't just invest, invest, invest capacity and hope that the
Speaker 2: rest of the world will buy it. At some point,
Speaker 2: the rest of the world runs out of money or
Speaker 2: they run out of political world to buy your goods.
Speaker 2: And that's sort of the turning point we have China.
Speaker 2: It didn't matter twenty years ago, China wasn't a large
Speaker 2: an economy, could still invest in sell to the rest
Speaker 2: of the world. There was enough demand. Now China's so
Speaker 2: large that the rest of the world may not have
Speaker 2: the ability of the appetite to buy all these goods.
Speaker 2: So where does in demand come from?
Speaker 1: Where you have to look internal, Yeah, because we've seen
Speaker 1: that pushback kind of growing across even Asia, right, a
Speaker 1: lot of emerging nations, Like it's not just Trump, you know,
Speaker 1: it's in Mexico, it's in Brazil, it's here in Indonesia
Speaker 1: as well.
Speaker 2: Yeah, so many countries have sort of they're very strong
Speaker 2: trade relations with China. China is a big market in
Speaker 2: its own right, but China is also a very strong competitor.
Speaker 2: So the more competitive China becomes, of course more some
Speaker 2: of these countries also see price pressures on their own industries,
Speaker 2: and that's essentially a bit of a political problem because
Speaker 2: then these industries say we need protection. Well, then terrorists
Speaker 2: would go up in all these countries and so then
Speaker 2: China would suddenly face you know, a lot of terrants,
Speaker 2: not just in the US, sup in other countries as well.
Speaker 2: And we call this sort of a tariff cascade that
Speaker 2: the US starts something, but other countries then follow and
Speaker 2: to avoid that happening, and nobody really wants it's not
Speaker 2: helpful for the world for this to happen. The best
Speaker 2: solution would be to create demand in China to alleviate
Speaker 2: the pressure on exports to drive down prices in other countries.
Speaker 1: So it's like very hinges on that right now.
Speaker 2: In some ways it sounds hyperbolic, but you could say
Speaker 2: the fate of the world economy and large part depends
Speaker 2: on whether China can rebalance this domestic economy. So we
Speaker 2: tend to look at the terroriffs and the US and
Speaker 2: it's very disruptive, but there is an underlying logic here
Speaker 2: that in some ways to really bring the global economy
Speaker 2: to a more sustainable path, countries also need to fix
Speaker 2: their domestic side. The domestic side intimately linked to the
Speaker 2: global side, and there are two economies that need to
Speaker 2: fix their domestic side. One is the US probably consume
Speaker 2: a bit less, save a bit more by fewer goods
Speaker 2: some overseas. But conversely China should probably buy more goods
Speaker 2: and produce fewer goods. And so if we can get
Speaker 2: that realignment, then actually the pressure for terrafs would go away,
Speaker 2: would have much more stable global growth, and that's going
Speaker 2: to be the challenge in the next few years.
Speaker 1: For the rest of the year. You talked earlier about
Speaker 1: the negotiations between countries like Vietnam, Japan with the US
Speaker 1: to try to get exemptions from these tariffs. The IMF
Speaker 1: World Bank meetings are coming up in DC, and it
Speaker 1: just strikes me that it's a really interesting moment we're
Speaker 1: in where these World Bank meetings are happening. There's a
Speaker 1: trade crisis, and you know, it happens to be taking
Speaker 1: place in the location that arguably started this crisis. How
Speaker 1: much I guess negotiation do Asian countries need to do
Speaker 1: to get these tariffs lowered, but also can they actually
Speaker 1: do what Trump wants them to do. Can a country
Speaker 1: like Vietnam, for example, fully rebalance this trade surplus they
Speaker 1: have with the US because the economy is much smaller.
Speaker 2: Yeah, that's a tough question. The first thing I would say,
Speaker 2: I think you're right, there's going to be a lot
Speaker 2: of door knocking during the IMF Will Bank meetings in Washington,
Speaker 2: d C. Because of course these delegations come in from Asia,
Speaker 2: and that's going to be opportunity to maybe meet somebody
Speaker 2: at the White House or the USTR US Trade Representatives
Speaker 2: Office or Commerce Department, because often I think many officials
Speaker 2: and smaller economists also don't know exactly how to go about,
Speaker 2: you know, negotiating what does the US want? So you
Speaker 2: establishing that contact will be very, very important, and so
Speaker 2: probably this is one of the key opportunities to do that.
Speaker 2: And so I'd imagine a lot of delegations, even larger
Speaker 2: delegations in previous years, will be heading to d C.
Speaker 2: What can they offer That's a tricky one. You know,
Speaker 2: you can say we're buying more goods from the US,
Speaker 2: we can buy more energy, we can buy more agriculture
Speaker 2: goods in some countries to talk about defense goods, for example,
Speaker 2: but it's hard to see that being the sole solution
Speaker 2: to everything. And so if the goal is to completely
Speaker 2: eliminate the trade imbalance with every single country in the world,
Speaker 2: that's going to be tall order. So the hope is
Speaker 2: that maybe the US administration relaxes a little bit on
Speaker 2: the goal of just eliminating the trade deficits, where maybe
Speaker 2: these countries can convince the US and say, look, we
Speaker 2: understand we want to work towards more balanced straight but
Speaker 2: we can't do it overnight. This will have to be
Speaker 2: a goal over many, many years, and let's work towards
Speaker 2: this adjustment together, and we'll be willing to buy more
Speaker 2: of your goods. We'll be willing to reduce our import
Speaker 2: barriers for your companies to sell us more goods to
Speaker 2: invest here. But a quick elimination of these trade deficits
Speaker 2: it's going to be, I think, very very hard to do.
Speaker 1: So, Fred, is there a world in which any of
Speaker 1: these countries, be at Vietnam or India actually benefit fit
Speaker 1: from these negotiations with Trump?
Speaker 2: So one big benefit would be just a certainty, the
Speaker 2: certainty that if so, if you have a trade deal
Speaker 2: between say US and Vietnam on the back of this,
Speaker 2: then this would be a big benefit to Vietnam, even
Speaker 2: if the terrors don't go to zero, but there'd be certainty,
Speaker 2: there'd be certainty that we have this deal. Terrors are
Speaker 2: going to be ten percent or twenty percent of what
Speaker 2: it is, but this is it, this is we all
Speaker 2: agree on it, and that certainty is very important and
Speaker 2: incentivize investment to come back. So I think that's one
Speaker 2: main thing. But I think there's something else which is
Speaker 2: worth looking at, which is that the terrorists by the
Speaker 2: US were essentially a wake up call to Asia as well,
Speaker 2: because you know, we've gotten accustomed to this idea of
Speaker 2: this we could always export to the United States and
Speaker 2: this is how we grow our economies. And now there's
Speaker 2: a realization, oh, that's not a given. And so what
Speaker 2: you see now is policy makers think more about other
Speaker 2: growth drivers, and these include domestic growth drivers. And so
Speaker 2: you had in Indonesia, for example, the president already indicating
Speaker 2: that or maybe we should work more on simplifying red tape,
Speaker 2: bring more investment in how can we strike maybe free
Speaker 2: trade agreements in India? You have the same thing. How
Speaker 2: do we maybe liberalize trade with other countries like New
Speaker 2: Zealand or European Union, How do we just get industry
Speaker 2: to invest more domestically and so in some ways it
Speaker 2: could be a catalyst for some domestic reforms which ultimately
Speaker 2: will be beneficial.
Speaker 1: Yeah. I mean, we saw China, South Korea, Japanese officials
Speaker 1: meeting and China signaling that I wanted to speed up
Speaker 1: the process to getting an FTA. I mean that would
Speaker 1: be huge.
Speaker 2: And as we speak, Chinese presidents in Southeast Asia visiting
Speaker 2: different countries there, Vietnam, Cambodia, Malaysia, and let's see it.
Speaker 2: Maybe something comes out of that as well, you know,
Speaker 2: let's work together. And so that could be tighter relations
Speaker 2: with China, that could be bilateral agreements on investment for example.
Speaker 2: So there's this catalyst for that part as well. But
Speaker 2: don't underestimate also the catalyst for domestic reform, which is important.
Speaker 2: Often Asian economies are very successful at exporting, but they're
Speaker 2: less successful at essentially unleashing domestic growth drivers. And that's
Speaker 2: often because there's lack of competition domestically, lack of infrastructure,
Speaker 2: too much regulation, domestically. So often the domestic economy is
Speaker 2: much more distorted than the external economy in these countries.
Speaker 2: And so if you could then start to unleash some
Speaker 2: of the domestic potential, that go a long way to
Speaker 2: offset any uncertainty from trade, and ultimately that's an opportunity.
Speaker 1: And that would be things like changing the rules around
Speaker 1: automatic payments or like, I guess what are some of
Speaker 1: the changes that could really help unleash that. Are there
Speaker 1: certain regulations in place or would be an example.
Speaker 2: So on examples, if you have large countries, often they
Speaker 2: have internal barriers. Great India, for example, if you go
Speaker 2: from one state to another, it's sometimes harder to trade
Speaker 2: within India than trade between Indian and other countries, even
Speaker 2: though it's one point four billion people. It's the same
Speaker 2: in China. Actually there's a lot of different levees and charges,
Speaker 2: and it is difficult to move goods across borders within
Speaker 2: the country itself. So you could think of internal trade
Speaker 2: liberalization in many ways. You could also simplify through technology,
Speaker 2: tax payments, tariff payments. You could what the Indians have
Speaker 2: done very successfully, introduce sort of electronic payments into the government.
Speaker 2: Right you pay your taxes and everything electronically, that is
Speaker 2: a huge potential for just unburdening the economy. You can
Speaker 2: think of hard infrastructure, you know, particularly rural areas for example.
Speaker 2: You can think about more money going to education, for
Speaker 2: example mass education training programs, so that there's a lot
Speaker 2: these countries can do. Still on the domestic side, and
Speaker 2: one key thing is competition very often. So what we
Speaker 2: find is that actually many Asian countries that the domestic
Speaker 2: market is less competitive because there are large conglomerates that
Speaker 2: kind of have a fairly strong position. Then the external
Speaker 2: economies external economy is very very competitive, often because these
Speaker 2: companies have to compete in the global market where there's
Speaker 2: a lot of competitors. But then you go to the
Speaker 2: domestic economy and you find you to see that retail
Speaker 2: is dominated by one or two companies. You see that,
Speaker 2: you know, domestic car manufacturing is dominated by certain local companies,
Speaker 2: and so there's a lot to be done to deregulating
Speaker 2: it so there is more internal competition and that ultimately
Speaker 2: would drive innovation, investment, bring prices down, more consumption.
Speaker 1: It seems like a good thing for these economies to do,
Speaker 1: but it also paints this picture of a world where
Speaker 1: the US is just less relevant.
Speaker 2: Yeah, I think that's fair. I mean, what we really
Speaker 2: have here is probably the US signaling it wants to
Speaker 2: rely less on imports, and how they go about that
Speaker 2: that remains to be seen. But I think it's clear
Speaker 2: that the US has decided to some extent that it
Speaker 2: wants to bring more manufacturing home rely less on imports.
Speaker 2: And so that's a broad journey we're going down. And
Speaker 2: so the rest of the world and has sort of
Speaker 2: an existential question it's facing, and that is how do
Speaker 2: we then kind of grow without purely relying on the
Speaker 2: US market. And that's particularly relevant for Asia because Asia
Speaker 2: is so externally driven, so dependent on the US much
Speaker 2: more than say economies in Latin America or Eastern Europe,
Speaker 2: for example. So it's a particularly existential issue for economies
Speaker 2: in Asia. You could say could be sort of the
Speaker 2: end of the Asian growth miracle. That's one way to
Speaker 2: put it. But the other one is to say, actually,
Speaker 2: this is just a retooling of the Asian growth miracle.
Speaker 2: And there's over three and a half billion consumers in
Speaker 2: this region. Surely if you find a trick to kind
Speaker 2: of get them to spend. There's a lot of growth
Speaker 2: on the table that these economies could capture, but getting
Speaker 2: there that's going to be the key part.
Speaker 1: Yeah, So you as an economist, you look across the
Speaker 1: entire region. So if we're looking at specific countries that
Speaker 1: if these tariffs do come in, if there's a more
Speaker 1: protectionist kind of world, relying less on demand from the US,
Speaker 1: which countries in the Asia region do you think would
Speaker 1: be hardest hit and which ones might potentially benefit or
Speaker 1: get away kind of unscathed.
Speaker 2: So probably in the next year or so, you could
Speaker 2: say that these economies that are highly highly dependent on
Speaker 2: trade are going to struggle bit more than the ones
Speaker 2: that have less dependent on trade, have more domestic kind
Speaker 2: of economies to fall back on. You could start with,
Speaker 2: you know, New Zealand, Australia probably not that affected by this.
Speaker 2: I don't export that much to the United States to
Speaker 2: begin with, they are fairly domestically driven. Or when they
Speaker 2: trade a trade with other countries not with the US,
Speaker 2: you could say India probably less affected than others. Most
Speaker 2: of the exports the US are actually services which are
Speaker 2: not being tariffed. There's a bit of a question mark
Speaker 2: or pharmaceuticals currently exempt, but in the exports pharmaceuticals to
Speaker 2: the US, there could be some tariffs come in there.
Speaker 2: But by in large India as a large domestic economy,
Speaker 2: you could talk about the Philippines. I even think Indonesia
Speaker 2: not as impacted. So that's that's sort of on the
Speaker 2: positive side, right, economies that are more domestically oriented, and
Speaker 2: then you have once they are traditionally just driven by exports,
Speaker 2: the global cycle matters and so forth, and so to
Speaker 2: the extent that we get disruptions here, think about Korea,
Speaker 2: think about Vietnam, think about Thailand, think about Japan for example,
Speaker 2: who are all more vulnerable in terms of any disruptions
Speaker 2: to trade, and so it doesn't mean that they can't
Speaker 2: pull through. Doesn't mean that, you know, Vietnam will always
Speaker 2: be a very very competitive economy, but the adjustment challenge
Speaker 2: is quite quite significant. So those this out of the
Speaker 2: economies to line up, But the big one is China,
Speaker 2: and China you could say at the moment is probably
Speaker 2: in the case that would probably struggle a bit more,
Speaker 2: but it has a potential to shift in the camp
Speaker 2: of the other economies that wouldn't struggle as much. Because
Speaker 2: it has a large domestic potential. And so if CHINAUS
Speaker 2: can taple this, it can switch from being very vulnerable
Speaker 2: to being actually least vulnerable in Asia. But it requires
Speaker 2: that domestic adjustment, particularly stimulus at the moment, fiscal stimulus
Speaker 2: giving households to consume again. You could do this through
Speaker 2: spending vouchers. You can do this through expanded social security.
Speaker 2: You can try to help the real estate market to
Speaker 2: get it back on his feet. You know, if you
Speaker 2: get that going, then actually China is less vulnerable. So
Speaker 2: China's kind of a is in between and where it
Speaker 2: falls it really depends on how aggressive domestically they'll be
Speaker 2: on stimulus.
Speaker 1: How optimistic are you for this year on a scale
Speaker 1: of one to ten, You.
Speaker 2: Know, I'm probably more optimistic than a lot of the
Speaker 2: commentary you see out there. And how markets behave I mean,
Speaker 2: markets really had a bit of a topsy turvy time
Speaker 2: is at least the last couple of weeks.
Speaker 1: You know.
Speaker 2: The first thing I think is that there's still room
Speaker 2: for winding some of this.
Speaker 1: Back in terms of the terroriffs A terrorists.
Speaker 2: Yeah, so it might get some deals come through. We
Speaker 2: might see also more interest rate cuts by plentral banks
Speaker 2: come through. We might see more fiscal stimulus come through,
Speaker 2: might see more reforms come through. I don't think this
Speaker 2: is a moment. There's a seminal moment, because the US
Speaker 2: is somewhat withdrawing from global trade, and something else will
Speaker 2: have fulfill this. But I don't think it'd be quite
Speaker 2: as painful as sort of the darkest scenarios currently suggest.
Speaker 2: Now I'm an economists. You know that means by definition
Speaker 2: of a pessimist realist.
Speaker 1: People might call that.
Speaker 2: Well realist. Yeah, but I think in this one, I
Speaker 2: almost think that actually pragmatism will prevail, and so we
Speaker 2: will muddle through this. It's a growth shop making, no mistake,
Speaker 2: but we'll get through this. I mean, Aga is very,
Speaker 2: very resilient, lots of resources, and so I still think
Speaker 2: the outlook for this region is bright. Maybe a little
Speaker 2: bit dimmed the next twelve months, but certainly I can
Speaker 2: see the sun shining through those clouds on the other.
Speaker 1: Side, and maybe on that positive note, we'll wrap that up.
Speaker 1: Thanks so much for joining me.
Speaker 2: Yeah, thank you. It's a real pleasure. It's an honor
Speaker 2: to be here. As I said, I listened to this
Speaker 2: religiously every week and so, you know, being in your
Speaker 2: wonderful studio in Hong Kong, it's quite an honor.
Speaker 1: Thank you, Yeah, thanks so much for being here. You've
Speaker 1: been listening to Asia Centric from Bloomberg Intelligence. I'm Katidmitrieva
Speaker 1: in Hong Kong. You can find us on Apple Podcasts, Spotify,
Speaker 1: or wherever you listen. You could also find us on
Speaker 1: the Bloomberg Terminal if you have one. This podcast is
Speaker 1: produced and edited by Clara Chen. To see you next time,