Despite potential geopolitical shocks from all sides, researchers at Deloitte are backing a big year for trade in Asia, which they say will “trump protectionism”.
Increased openness in Asia’s “mega-economies of the future” – Indonesia, the Philippines and Vietnam – rising commodity prices, growing services sectors and Chinese stimulus are mentioned as the reasons for this positivity.
And while the consultancy is not dismissing the potentially catastrophic impact a Trump administration would have on regional trade should it pursue aggressive tariff measures against China, they are of the view that President Trump’s influence on global trade volumes over the next few years may be smaller than many imagine.
Speaking to GTR from his office in Canberra, Deloitte Access Economics lead partner Stephen Smith says: “Trump has clearly generated a lot of hot air, but headlines are not economies. The threat of tariffs I don’t think will have large ramifications. The extent to which he will act on that hot air, and create a trade war with China, we think is overblown.”
He adds: “There may be a better chance in 2018, with mid-term elections, but in 2017 we don’t think that’s a major risk, despite the rhetoric.”
The Deloitte report is somewhat surprising, given the gloomy global trade picture: for the first time in decades, trade growth now lags behind that of global GDP. Asia, being so trade-dependent, was hit hard by the downturn, just as it was buoyed by the post-Cold War era of rapid globalisation that spanned two decades.
However, the report suggests that the shocks of the global financial crisis are finally starting to subside, with growth returning slowly to the US and EU – a positive for the exporters of Asia.
Furthermore, the value of Asian trade has suffered disproportionately to the volume, Deloitte says, with the strong dollar reducing the prices of internationally traded goods and the Chinese exporting excess industrial capacity to other countries in the region (most notably steel).
With sharp increases in some commodity and energy prices and export orders climbing around Asia, the value of world trade is likely to “trend upward in the near to medium-term”.
And while China’s latest injection of stimulus is not sustainable in the long-term (Beijing is still dedicated to its economic rebalance, moving towards a consumption-based model, away from such splurges), this will provide short-term support for trade around the region.
“The short-term stimulus in China will be positive for commodity prices and trade values and volume. Further ahead that transition will have some negative impact on the wider Asian region, but the lasting impact of stronger domestic consumption in China is good for everyone,” Smith says.