Annual Meetings

OVERVIEW

Rising global trade tensions have been rapidly reshaping global trade patterns. Looking back at the 2018-19 trade tensions between China and the U.S., what spillover effects have ASEAN economies experienced and what policy lessons can countries draw for the current juncture?

This presentation examines these effects through the lens of trade, value added, and FDI at the individual country/sector level. In several ASEAN economies, exports of products targeted by Chinese or U.S. tariffs grew faster than exports of untargeted products. Moreover, several ASEAN members also increased exports in targeted goods to third countries, suggesting that they not only exploited trade diversion opportunities but also realized economies of scale.

Zooming in on the value added of exports, Vietnam stands out with rising local content in its exports, not only to the U.S. but also to the rest of the world. This was driven by an expansion in domestic production—a clear spillover from the China-U.S. trade tensions—and likely propelled by higher FDI inflows which also responded to the relatively lower tariffs compared with China.

What are the policy lessons?

• Deeper integration into global value chains and greater openness to FDI lay a stronger foundation for countries to benefit from trade diversion spillovers.

• The heterogeneous short-term spillovers from the China-U.S. trade tensions on ASEAN highlights the critical need for structural reforms.

• Strengthening broad-based competitiveness is now more important than ever, especially given the heightened uncertainty clouding global trade policy.

SPEAKERS