Asean could leverage on US protectionist trade policies

KUCHING: US protectionist trade policies need not affect Asean’s long-term growth, UOB Malaysia says as it delves into how infrastructure investment can offer some respite and drive future growth for both Malaysia and the wider region.

According to UOB Malaysia economist Julia Goh, the biggest beneficiaries of the Trans-Pacific Partnership Agreement (TPPA) in Asia would have been Vietnam, Malaysia and Singapore as these countries export products with high tariffs levied by the US.

“Vietnam would have gained from higher exports of agriculture goods, textiles and garments, footwear and automotive parts,” she said in an interview.

“Malaysia would have benefited from exports of palm oil and rubber, plywood, electronics, textiles, automotive parts and components.”

Goh noted that with the US out of the TPPA and in the event of increasing trade frictions, either through higher  tariff or non-tariff barriers and with the imposition of potential US border tax, Vietnam, Malaysia, Taiwan, South Korea, and Thailand could be particularly vulnerable given these countries’ trade exposure to the US and their high degree of trade dependence.

“As such without the TPPA, it would be lost opportunity for these countries in terms of potential revenue foregone,” she added.

Goh highlighted that without the US in the TPPA, it is unlikely that the other 11 members will push ahead with the deal.

She further noted that instead the members are likely to focus on the Regional Comprehensive Economic Partnership (RCEP) which is a more Asia-centric trade deal that is being negotiated between 16 countries including Asean, Japan, China, India, South Korea, Australia and New Zealand.

Market size of RCEP is US$23 trillion or 30 per cent of global gross domestic product (GDP).

“If the RCEP is realised, it would open up opportunities particularly for Vietnam, Malaysia, South Korea, India, China and Hong Kong, given some similarities in the trade deals,” she said.

Goh observed that according to recent news reports, President Trump says that the fact that the US is running large trade deficits with China is deemed “unfair”, which means that other trade partners with similar “unfair” advantage would also be at risk.

“These include Mexico, Canada, Japan, and in this part of the world, Vietnam, South Korea, Malaysia, and Thailand will be particularly vulnerable especially if TPPA is off the table. Singapore and Hong Kong would likely escape on this front given that the US has trade surpluses with these two economies,” she said.

Goh also highlighted that heightened political uncertainties, potential trade frictions and continued financial market volatility pose downside risks to the economy.

She said that given Malaysia’s high dependence on trade and strong financial linkages, potentially destabilising protectionist US policies or political fallout that threatens the economic stability of the European Union (EU) will challenge the country’s economic growth this year.

“In mitigating these uncertainties, Malaysia should continue to facilitate intra-regional exports through Asean and Asean trade partners and reinforce regional integration within Asia. Malaysia should further diversify away from traditional export sectors towards higher value-added segments to support economic growth.

“However, the key growth driver for the Malaysian economy and its neighbouring Asean economies in the longer term will stem from the development of mega infrastructure projects that improve connectivity and facilitate mobilisation of goods, services, and people,” she added.

As one struggles to find the catalysts for future economic growth, UOB Malaysia believed that the spotlight will remain in Asia where countries are embarking on large scale infrastructure programmes to boost long-term competitiveness and drive sustainable growth.

Goh explained that as more countries in Asia move to fill up the gap in manufacturing, especially as production movesout from China, the urban population will grow as more rural residents migrate into cities in search of better-paying jobs, and improved transport connectivity encourages growth in new towns and cities helping elevate overall growth.

She also noted that the middle income class will grow quickly, translating into a surge in consumption demand.

“Rising Asian affluence will be a net positive for consumption-related sectors such as the transport, logistics, utilities, information and communications technology, healthcare and education sectors.

“To cater for such massive demand in the future, Asia is doubling-up its efforts to reform their domestic economies, boost productivity, attracting investments and driving up economic growth.

“Within Asia, much of the growth will come from developing Asean economies such as Indonesia, Vietnam, Malaysia, Thailand, the Philippines, Myanmar, Cambodia, and Laos,” she said.

UOB Malaysia was of the opinion that the existing lack of infrastructure investment, as well as the opening up of frontier Asean economies such as Myanmar, presents huge opportunities for investors.

Goh pointed out that the current predicament has already attracted foreign investors’ attention and Asean has been experiencing increased foreign direct investment (FDI) inflows over the past few years.

“Asean has been so successful in its draw of FDI that we estimate that FDI inflows into Asean will surpass China for the first time in 2017, after falling behind for more than a decade.

“We anticipate that the FDI flows into Asean will continue to gather momentum,” she opined.