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Treasury Today Asia January/February 2019

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Editorial

APAC 2019: US-China trade war a big risk factor for treasurers

As it stands, the year ahead is shaped to be rather interesting, if not challenging, for treasurers across Asia Pacific, with politics a key theme as elections will take place in India, Indonesia, the Philippines and Australia.

But despite the uncertainties that elections anywhere always encompass for businesses, it can be argued that at least they are certain events, with (one hopes) a certain level of transparency and intelligence available on policies to enable at the very least some semblance of planning and preparedness.

Which is not something we can say at all about the US-China trade spat, the single biggest risk to the APAC region entering 2019. Any escalation of the dispute will likely lead to the slowdown in China being exacerbated, which in turn would have large knock-on effects across the region, given the interconnectedness of Asian trade.

The two countries have called a truce for now, after President Trump announced a 90-day delay in increasing US tariffs on US$200bn worth of Chinese goods to allow negotiations. But even if they go well, most analysts believe the kind of fundamental changes the US is demanding of China are almost impossible to agree on in such a short negotiating window.

As we note in this issue, the trade war has led to companies in both countries relocating to escape the fallout. A prime beneficiary has been Southeast Asia and South Asia, with their economies enjoying a boom in foreign direct investment, even as, mainly because of US tax reforms, global FDI has slumped.

Treasurers and trade chiefs in companies affected by the trade war have therefore been kept on their toes over, for instance, investment strategy, financial supply chain management, capex spend and cash management generally. With uncertainty over how the trade dispute between the US and China will evolve, the early months of the new year at least will likely remain challenging on these fronts.

Despite the threats posed by the trade war, investment analysts are generally predicting a stable to positive 2019 outlook for APAC, with forecasts of around 5% for GDP growth for the region versus rather more muted outlooks for the US, eurozone and Brexit-challenged UK. The hope is that even if the US-China trade war is not resolved, the region will manage to rise above the fallout. Under the circumstances, APAC-exposed corporates will likely be content with such an outcome.

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