TORONTO, The looming prospect of a full-blown trade war between the US and China should prompt Asean and the rest of Asia to brace for possible adverse economic consequences as the region is at risk of being caught in the crossfire if the dispute escalates, an expert has warned.

Adding to the chorus of concerns emanating from industry and business leaders around the world, Yves Tiberghien, a distinguished fellow at the Asia Pacific Foundation of Canada, said there is a risk that the world's trading system could also collapse under such a circumstance.

In a full-scale trade war between the world's two largest economies, Tiberghien said China would make any trade conflict long and painful and this could result in a US government being distracted by China and such would have a global impact.

In an interview with Bernama, he said however recent events had been more reassuring, after the US and China had announced punitive tariffs on each other goods and services, only to see the US softening its stand, and offering some measure in the handling of China while floating the thoughts of rejoining the Trans Pacific Partnership (TPP).

"But, I remain worried about the situation because the Trump Administration is not committed to the global trading system and won't hesitate to use threatening unilateral action that has the potential to lead to tit for tat responses by many players," he said.

Tiberghien said the general context is also one where inequality and anger had risen in many countries, especially those like the US that had failed to balance the fruits of trade with domestic redistributive policies.

"When populations are angry, they pressure political leaders to take stopgap actions that may have terrible effects on the public good and on the system itself, leading to trouble for all," he warned.

The TPP is a trade deal between 12 countries, namely Malaysia, Australia, Brunei, Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore, Vietnam, and US signed in 2016. As it was not ratified, the deal has not taken effect. US President Donald Trump had at the early stages of his presidency withdrawn the US from the TPP deal.

Trump has announced plans to impose tariffs on up to US$60 billion of Chinese imports and Beijing has responded with retaliatory measures including imposing tariffs of up to 25 percent on more than 120 American products, including pork, fruits, nuts and wine.

Shortly after, Trump raised the ante in the trade war rhetoric with China, saying he was considering another round of steep tariffs on Chinese exports to the US by considering whether another US$100 billion of additional tariffs would be appropriate.

Tiberghien foresees a risk of escalation with this new US threat even though China has yet to follow suit with retaliatory measures while clearly sending signals that it is open to negotiate.

He noted that at the Boao Forum last week, China President Xi Jinping had committed to key reforms and opening up of new sectors, while promising very tough protection of intellectual property rights.

"These are the very issues that have caused American anger and have frustrated many partners of China. So, there is still room for compromise, if the Trump team can work through the available options and not just pursue bluster," he said.

Noting that the global markets and stock exchanges had initially reacted negatively as trade tensions rose, with industrial and tech stocks taking the biggest hits and Dow Jones plunging and recovering, Tiberghien reiterated his assertion Asean faces risks if things were to get out of hand.

"Asean prospers when the Asia Pacific is at peace and the US and China cooperate over global rules. Asean and others like Japan, Korea, Europe, could find ways to mediate in this conflict and propose new ideas that can appear to be positive for both the US and China. It is a delicate game," he said.

As the US-China relations is a core anchor of the entire global economy, it has systemic effects, with the most vulnerable countries being those which depend more and more on China for trade and economic relations, and on US for security, according to him.

"No one can be immune in the mid to long-term if serious tensions arise between them," said Tiberghien, who is also the Director Emeritus of Institute of Asian Research and Executive Director, University of British Columbia China Council.

That the rest of the world is so integrated with one another economically that they would be inevitably be impacted, Tiberghien said there is no question that the Trump administration would first focus on China and would try to make gains with China.

He said the US would need to coordinate more with its allies and the reversal today on TPP is a huge case in point "but ultimately, everyone depends on the world trade system".

"What matters the most to everyone is that the US, the global economic leader, remains actively committed to the world system. Only then can we all prosper. Hopefully, other countries will find ways to successfully engage the US during this trial period," he said.

There are very few companies that are not involved in both the US and China markets, according to him.

China has said it is unafraid of a trade war and would deal with it at all costs but Xi is noted to have signalled readiness to address some of the most important issues in the dispute at the BOAO forum.

"The US should pursue its grievances possibly in cooperation with its partners and using all available resources, including the WTO," Tiberghien cautioned.

In a trade war, Tiberghien said the US would suffer, and so too would the rest of the world as there would be immediate effects and then indirect and secondary effects, and eventually systemic effects.

"Such battles ripple through an interconnected system like our trading system. However, the two lists of trade sanctions are just threats and will not be effective for 60 days at least (except the smaller steel and aluminium tariffs).

"Hopefully, both sides will make progress in negotiations and avoid implementing these sanctions," Tiberghien said.

Asia Pacific countries generally have good bilateral and trade relations with China and Tiberghien agreed they could take advantage of any trade dispute between US and China by zeroing in on the silver lining as China then might be looking elsewhere to other markets.

"This is true in the short-term, but a trade war between China and the US would be too big and too systemic to be ignored," he said.

However, he said if the intensity of the US-China dispute remains low and the two sides avoid the most destabilising actions, then the tensions might just erode trust and mutual relations between them and make the rest of Asia more attractive to both sides actually.

"Under such a medium intensity scenario, there could be some positive outcomes for ASEAN and the rest of the region," Tiberghien said.

Canadian Association of Importers and Exporters President Joy Nott meanwhile opined that a trade war will not be entirely a bad thing for countries like Canada as it could open the door for more exports to China to replace higher-priced American goods.

Canadian Imperial Bank of Commerce's chief economist Avery Shenfeld said in Canada's case, it could end up replacing the US as a supplier to China if China imposes restrictions on US products.

Retaliatory Chinese tariffs would add a 25 per cent charge on pork and aluminium scrap, reflecting Trump's 25 per cent duty on steel and a second list of goods including wine, apples, ethanol and stainless steel pipe would face a levy of 15 per cent.

Still, it is hard to predict the eventual scenario, given the high level of uncertainties the world is facing regarding the strategic calculations of both China and US at the moment, according to Tiberghien.

Source: NAM NEWS NETWORK