BO'AO (China) — A trade war between the United States and China could have “catastrophic” consequences for the world, as the strained ties between the two superpowers would make it very hard for progress on global challenges such as climate change and North Korea’s nuclear programme, Prime Minister Lee Hsien Loong has said.
Speaking at the opening ceremony of the Bo’ao Forum for Asia’s on Tuesday (April 10), Mr Lee described Washington and Beijing as having “the most important bilateral relationship in the world” and warned that a trade war “must damage these bilateral ties in many areas”.
“Surely it will make it much harder for the two countries to cooperate on climate change, non-proliferation, regional security and denuclearisation of the Korean Peninsula. None of these issues can be solved without the full participation of both countries,” said Mr Lee, who was making his debut appearance at the annual conference held in Hainan province in southern China.
“And if the disputes escalate and destabilise US-China relations, the consequences for the world could be catastrophic,” he added.
Both the US and China have been threatening to impose more tariffs on each other’s exports in the past week, rattling global markets and sparking fears of a full-blown trade war.
The US’ trade deficit with China climbed to its highest level on record last year, prompting the Trump administration to threaten a sweeping 25 per cent tariff on over 1,300 Chinese imports, like flat-screen televisions, medical devices, aircraft parts and batteries. China has hit back with proposed tariffs on US$50 billion worth of American soybeans, cars, chemicals and other goods.
However, Mr Lee pointed out that the focus on the US-China bilateral trade imbalance is “misplaced”, adding: “What matters to a country is not its bilateral trade balance with a specific trading partner, but its overall trade balance with the rest of the world.
"Furthermore, the cause of a trade deficit is an imbalance in the domestic economy, and in particular, it happens when a country consumes more than it produces.”
Singapore does not believe that imposing tariffs is a correct solution, said Mr Lee, who was among seven foreign leaders to speak at Bo'ao's opening session on Tuesday. He pointed out that unilateral measures are not compliant with rules under the World Trade Organisation (WTO), and urged Washington and Beijing to resolve their trade disputes within the global trade body's framework.
Nonetheless, Mr Lee acknowledged that there is “broad political support” in the US for such retaliatory measures, in part due to perceptions among American companies that they are not on a level playing field in terms of access to some parts of the Chinese market.
“Trade arrangements and concessions made in the past when China was only 5 per cent of the world’s Gross Domestic Product (GDP) are less readily accepted today, when China makes up 15 per cent of the world’s GDP and is expected to grow this share even further. US companies that previously advocated for China when it joined the WTO in 2001 now feel disadvantaged,” he said.
Turning to China, whose global economic clout has grown considerably since it joined the WTO in 2001, Mr Lee noted that there are growing expectations from many countries for Beijing to further liberalise its market and contribute to the multilateral trading system.
"Indeed, China itself recognises that it has been a major beneficiary of globalisation, and will lose out if the existing multilateral, rules-based order falters," he added.
Still, Mr Lee assessed that a US-China trade war is "still far from inevitable", and called on the two countries to "work out an accommodation and head off further escalation".
He also expressed optimism that Beijing will handle this challenging period in international relations well, given its ability to take a strategic, long term view.
"It is in China’s fundamental interests to contribute more to strengthening multi-lateralism, in keeping with its larger weight in the world," he added. "And it is vital that China does so now, at this testing moment in international relations."