U.S. Must Accept China’s Rise to Avoid Conflict, Singapore Says

(Bloomberg) -- Singapore Prime Minister Lee Hsien Loong urged the world's biggest economies to accommodate each other's interests to avoid a prolonged conflict, adding that the U.S. “has the most difficult adjustment to make.”

Speaking at a regional forum attended by Acting U.S. Defense Secretary Patrick Shanahan and Chinese Defense Minister Wei Fenghe, Lee called on both nations to avoid a “zero-sum dynamic.” China must convince the world that it's a responsible global player, he said, while the U.S. must give Beijing a greater say in forging international rules.

“The U.S., being the preeminent power, has the most difficult adjustment to make,” Lee said. “But however difficult the task, it is well worth the U.S. forging a new understanding that will integrate China's aspirations within the current system of rules and norms.”

Singapore, a city-state heavily dependent on trade, has been one of the most outspoken countries in Asia calling for the U.S. and China to reach a deal. Lee warned last year that Southeast Asian nations might someday have to choose between them, and said Friday that punitive trade actions would affect investments, technology and people-to-people ties.

‘Divided and Troubled World'

“Every action taken by one side will be seen as a direct challenge to the other, and will elicit a counter-action,” Lee said. “We will all be headed for a more divided and troubled world.”

The trade conflict between the U.S. and China took a dramatic turn for the worse in May after President Donald Trump hiked tariffs after accusing Beijing of reneging on commitments in negotiations. His administration also blacklisted Huawei Technologies Co., threatening to cripple China's most strategic technology company.

China has responded with tariff increases and threats against U.S. companies. On Friday, the Commerce Ministry said it will establish a list of so-called “unreliable” entities that could affect thousands of foreign companies operating in Beijing. Bloomberg News reported that Beijing has also readied a plan to restrict exports of rare earths to the U.S. if needed.

China Threatens Sweeping Blacklist of Firms After Huawei Ban

In a question-and-answer session after the speech, Lee said Singapore hadn't yet decided which company's equipment it would use to build a 5G network. He said every system would have vulnerabilities, and it's important to be able to trust the country that provides the equipment.

Lee said it was worrying that a bipartisan consensus was emerging in the U.S. that China was a strategic competitor that needed to be contained, a sentiment that is likely to get worse as the 2020 election approaches. He said a protracted face-off wouldn't look like the Cold War, given the U.S. and China don't have an “irreconcilable ideological divide” and Beijing has extensive trade links with the rest of the world.

To reach a lasting agreement, he said, political leaders must work to convince skeptical populations of the merits of working together. He also called for strengthening multilateral institutions, saying no country should “cripple or block them.”

“It is the responsibility of political leaders to find solutions to head off these extreme outcomes,” he said.

Global trade has been in swifter decline in 2019 amid greater U.S.-China tariffs and threats that have discouraged investors and prompted businesses to consider re-jiggering their supply chains. Even before the latest escalation, China's economy was losing momentum, as reflected by weaker-than-expected data in April.

The trade-war pain, alongside cyclical weakening in global demand, has been particularly felt among the world's export engines in Asia. Exports for Japan, South Korea, Singapore and Taiwan all contracted in April from the same time in 2018. Vietnam has stood out as a lone beneficiary, posting export gains and attracting more attention among businesses.

Speaking in Washington earlier this month, Foreign Minister Vivian Balakrishnan said it won't work to view China as an adversary that must be contained, and he called for “constructive competition” between the superpowers. A world that splits into rival blocs would jeopardize gains made under the U.S.-led world order over the past 70 years, he said.

“Singapore wants both a sustained U.S. presence, which we believe is positive, and we also want China to be able to assume its rightful place as it develops and becomes a superpower in its own right,'' Balakrishnan said.

Lee said both the U.S. and China are so big that neither could take each other out if they tried, and that Singapore didn't want to choose between them.

“We maintain links with both sides, but to actively avoid taking sides, actually also requires actively not being pressured to take sides,” he said, prompting laughter. “And unfortunately, when the lines start to get drawn, everybody asks ‘Are you my friend or not my friend?' And that makes it difficult for the small countries.”

To contact the reporters on this story: Philip J. Heijmans in Singapore at pheijmans1@bloomberg.net;Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Derek Wallbank