People walk near a popular shopping street in Beijing on Feb. 3.GREG BAKER/AFP/Getty Images
Asian economies have faced a series of setbacks in recent years, slowing growth: the pandemic, war in Ukraine and, now, protectionism from the United States and possibly other key trading partners.
Washington has imposed stringent tariffs on its three largest trading partners – Canada, Mexico and China – and introduced a global 25-per-cent levy on steel and aluminum, with a further “reciprocal tariff policy” due to come into force on April 2, which is expected to have an outsized effect on many Asian exporters.
This has created a huge amount of uncertainty in the region, which has been exacerbated by a slowing Chinese economy, and concerns that the European Union and others could follow the U.S. in imposing greater trade barriers, Albert Park, chief economist at the Asian Development Bank, said in an interview.
“Most of the worst-case scenarios are where tariffs become more ubiquitous globally,” Mr. Park said. “This will lead to slower growth and hurt everybody.”
He warned global supply chains “can’t work around a lack of global demand, so in a scenario where the U.S. is aggressively imposing tariffs on most countries, and those countries retaliate, growth could slow by nearly a percentage point over the next year.”
Mr. Park was doubtful this “worst-case scenario” would come about, but he acknowledged it was among the many concerns weighing upon Asian policy makers as they face a rapidly changing geopolitical environment.
The Manila-based ADB – which counts 69 members, the majority in the region, but also Canada, the U.S. and many European countries – advocates for greater integration among Asian economies, and Mr. Park said so far there is still a great commitment to free and open trade in Asia.
“Everyone is benefiting from interconnectedness,” he said. “The majority of trade in Asia is with Asia, and the majority of foreign direct investment in Asia is also from Asia. That creates a situation where the region can build off its internal growth dynamics and still sustain some growth momentum.”
In a report out this week, the ADB said the value of trade within Asia increased by an annual average of 8.2 per cent from 1990 to 2023, compared with 6.8 per cent in terms of trade growth outside the region. The bank said the growing levels of interconnectedness in Asia – particularly when it comes to foreign direct investment, remittances and tourism – was comparable to that of the European Union plus the United Kingdom.
“Economic integration has been pivotal in Asia and the Pacific’s remarkable economic growth and rapidly rising global clout over the past two decades,” Mr. Park wrote in a foreword to the report.
Skepticism that the “Asian century” is over after only 25 years may be overstated then, but the region is still grappling with major challenges, not least the slowing Chinese economy.
Last week, Beijing unveiled a “special action plan” to boost domestic consumption, long seen as vital to rebalancing an economy heavily reliant on exports and state infrastructure spending. Officials said this would help the government hit its stated target of “around 5-per-cent” GDP growth this year, seen as ambitious given the headwinds of a U.S.-China trade war, a continuing slump in the Chinese property market and a growing demographic crisis.
China is hosting two development forums this week, and President Xi Jinping is also expected to meet with foreign business leaders as his government attempts to boost lagging investment.
If Beijing is successful in getting Chinese consumers to spend more, that would be beneficial for the entire region, Mr. Park said. “We have a rule of thumb, where 1 per cent higher growth in China increases growth elsewhere in the region by around 0.3 per cent. There are a lot of different channels through which those spillover effects can be felt.”
Another concern for developing countries in Asia is U.S. President Donald Trump’s dismantling of the U.S. Agency for International Development, which spent US$3.85-billion across East and Southeast Asia in 2023, including on emergency food, medical and humanitarian support, which many countries will struggle to afford by themselves.
Mr. Park said ADB was “very concerned” about the effect this would have on members’ abilities to hit their development goals.
“It’s substantial, and we’re already getting requests from countries about whether we can help fill in some of the gaps,” he said, adding that ADB itself has projects that were previously done in partnership with USAID, which will now face a shortfall.
“All these things need to be worked out, and will certainly create a more challenging environment for promoting development projects that are really needed by governments in the region,” Mr. Park said. “Especially as European economies are now prioritizing defence spending and cutting overseas development assistance as well.”