World Economy

Ongoing US Trade Tensions a Threat to Asian Growth

Many Asian economies are heavily dependent on trade and have been growing, thanks to stable policies and open trade and investment regimes
ADB President Takehiko Nakao says new technologies such as AI can generate new occupations.
ADB President Takehiko Nakao says new technologies such as AI can generate new occupations.

Trade in Asia has been growing at a consistently fast clip since 2017 but could be disrupted if disputes escalate, Asian Development Bank President Takehiko Nakao said Thursday as the regional lender began its annual meeting.

Asked at a news conference about friction between the US and China over their trade imbalance, Nakao said that so far mounting friction has not measurably hurt robust imports and exports in the region, AP reported.

“Of course we are concerned about the ongoing disputes among some countries and if trade is interrupted it would have a large damage to Asian countries as well as to other countries in the world,” Nakao said as the ADB began its annual meeting in Manila, where it is based.

The meeting coincided with the start of two days of talks in Beijing between senior US and Chinese leaders aimed at tempering differences over the two countries’ huge, chronic trade imbalance and staving off damaging tariffs each has threatened to impose on the other country’s exports.

Many Asian economies are heavily dependent on trade and have been growing thanks to stable policies and open trade and investment regimes, Nakao said.

Asked about China’s “Belt and Road Initiative”, Nakao said developing countries need to take a careful look at projects backed by the program and avoid taking on unsustainable debt.

The ADB is cooperating with the China-led Asia Infrastructure Investment Bank and the “BRI”, whose aims parallel its own in promoting development, though the relatively new efforts are designed to link China’s economy with others in the developing world, especially in Southeast Asia and Central Asia.

But Nakao said infrastructure projects must be economically sound. “If countries borrow too much for certain infrastructure without a serious look at the economic viability and feasibility, it would cause more trouble in repayment,” he said.

The ADB reported Thursday that it spent billions on helping mitigate the impact of climate change, while projects it financed helped to connect 2.7 million households to electricity. It provided new and improved water supplies to more than 200,000 households and improved schools for 1.6 million students. Overall, it said it provided $20.1 billion in financing in 2017, up almost $7 billion from the year before.

Technology a Double-Edged Sword

As Asian governments invest in automation, many are concerned about a spillover effect on jobs and education. It's imperative for the region to protect workers, instruct societies about disruptive technologies and harness private sector funds in the process, experts said at a CNBC-hosted debate during the ADB's annual gathering in Manila on Friday.

Home to many developing countries that are skipping traditional stages of digital development to embrace advanced solutions such as big data, Asia is increasingly creating smart cities reliant on the Internet of Things.

But that could hit blue-collar workers, with situations such as truck drivers losing their jobs to driverless vehicles, Sri Lankan Minister of Finance and Mass Media Mangala Samaraweera warned.

As an emerging economy, "we need to explore more serious options to mitigate those challenges ... How are we going to absorb thousands of people who may lose their jobs to automation?" he said. "The choice is whether we enter into what I call an Athenian age of innovation or enter another period of high unemployment and anarchy," he said.

The ADB has a more optimistic view on the situation. New technologies can generate new occupations, said Nakao: "If there is more AI usage, there will be more work created."

Robotics and artificial intelligence are bound to displace certain jobs, but they will also "unleash countervailing forces that generate more jobs," the ADB said in an April report. Task automation will restructure jobs in a way so that machines handle only the routine tasks, freeing up workers to focus on complex procedures that can result in improved productivity, it continued.

"The next technological change is going to come from a scientist, not a robot," said Nandita Parshad, managing director for energy and natural resources at the European Bank for Reconstruction and Development: "Right now, we need all the human brains behind technology."

On the topic of financing, panelists said it's unrealistic to assume Asia's public sector can foot the bill for digitalization. Governments "have to make it interesting for the private sector to come in," said Parshad. "Public and private companies need to work together to reach as much scale as possible."

Financial Commitments

ADB's private sector operations over the past year reached $2.3 billion, growing the bank's overall portfolio of private sector operations by 17% to $10.9 billion, according to ADB Private Sector Operations Department's, or PSOD, Development Effectiveness Report 2017.

The 27 new private sector operations committed in 2017 accounted for 13.4% of overall signed regular ordinary capital resources financing. Last year's commitments were complemented by $5.9 billion in co-financing, representing 50% of all co-financing mobilized by ADB.

ADB is firmly committed to partnering with the private sector to help improve infrastructure, expand access to finance, and achieve the Paris Agreement on climate change and the Sustainable Development Goals, said ADB Vice President for Private Sector and Co-Financing Operations Diwakar Gupta.

PSOD will continue to ambitiously work to expand its private sector operations from 13.4% to 20% of total commitments by 2020, including by working in new frontier markets and sectors and increasing support for high-level technologies to improve development impact.

The ADB said it would substantially increase its lending to Sri Lanka this year as the country has undertaken larger development projects in recent times and its economy offers a tremendous growth potential compared to its South Asian peers.  

According to Hun Kim, ADB’s director general for South Asia, the development lender will increase its lending to between $600 to $800 million in 2018, a substantial increase from the current annual average of $400 million extended to the country during the last three years.

Add new comment

Read our comment policy before posting your viewpoints