‘Very Negative’ Global Impact If No U.S.-China Deal, Heng Says

(Bloomberg) -- It's vital that the U.S. and China settle their trade differences to avoid damaging economic growth elsewhere in the world, Singapore's finance minister said.

“It's important for both sides to try and cut a deal because the impact on the global economy of any trade friction is going to be very negative,” Heng Swee Keat said in an interview with Bloomberg Television's Haslinda Amin on the sidelines of the World Economic Forum meetings in Davos.

The world's top policy makers and executives gather this week in Davos with the global economy at a turning point: the upending of trade frameworks and a cyclical slowdown in demand have prompted widespread downgrades of global growth. Another came Monday from the International Monetary Fund, though it left growth forecasts for the U.S. and China untouched.

Singapore is one of the most export-reliant nations in the world, and U.S.-China trade tensions and a slowing global economy are particularly worrying for authorities in the city state.

Economic growth held above 3 percent for a second year in 2018, and Prime Minister Lee Hsien Loong expects an expansion of 1.5 percent to 3.5 percent in 2019, with “major uncertainties” in the global economy and nervous financial markets weighing on the outlook.

Heng, 57, is widely viewed as the de facto successor to Lee after being named the first assistant secretary-general of Singapore's ruling political party in November.

Supply Chains

U.S. and China trade negotiators resumed talks this month to try to resolve their dispute, with the two sides making little progress so far on issues of intellectual property, according to people close to the discussion.

Read More: U.S.-China Trade Talks Falling Short on Make-Or-Break IP Issues

Trade tensions are prompting changes in how goods are manufactured and traded, Heng said. “In the short run, many companies are really scrambling to look at how they can restructure the supply chain to make it a little more resilient,” he said.

Southeast Asia is a potential beneficiary as companies seek to shift supply chains, the minister said, echoing recent comments from economists and businesses who see countries like Vietnam and Malaysia as potential winners from the trade war.

“A number of the Southeast Asian countries, I think, will have the benefit of this restructuring,” Heng said. Logistics companies are already reporting shifts as a result of the trade conflict and changing global dynamics, he said.

Trade Stress

“At the same time, the Chinese companies are also going out of China -- China has a very explicit strategy of encouraging the companies to go out,” he said. “So as they go out, the entire supply chain is going to be reconfigured.”

Heng warned that trade stress is likely to persist.

“There will continue to be many sources of friction,” Heng said. “This is going to be a fairly medium- to long-term issue. There will be sources of disagreement on how things have to be done and how competition is to be conducted."

--With assistance from Joyce Koh and Sridhar Natarajan.

To contact the reporters on this story: Jun Luo in Shanghai at jluo6@bloomberg.net;Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Andrew Langley, Karl Lester M. Yap

©2019 Bloomberg L.P.