Greater danger from a trade war is in souring of Sino-US ties, impact on Asia: PM Lee

[SHANGHAI] The greater danger from a US-China trade war is not just in higher tariffs or damage to trade, but the souring of Sino-US ties more broadly, Prime Minister Lee Hsien Loong said on Thursday.

And Singapore and the region have to be prepared for this possibility, he added.

Such an outcome "would make it very difficult for all the countries in Asia who are trying very hard to become friends with both, or stay friends with both," he told Singapore reporters at the end of his five-day visit to China.

PM Lee said the numerical impact of such a conflict in terms of trade volume, tariffs, trade diversion and investment projects that become aborted or non-viable can be estimated and "probably is not enormous".

On the other hand, the indirect consequences "in terms of the impact on the overall bilateral relationship between China and America, the difficulty they will have cooperating in many different areas where the world depends on them cooperating, and the awkwardness and the sourness in the relationship", would have an impact on others in the region.

"In terms of the impact on the global security of the international system, I think going down this route is clearly very much the wrong thing to do," PM Lee added.

He was responding to a question on the impact a trade war would have on Singapore, in an interview with Singapore media.

We can't quantify the impact on us, we know that it means we are in for a more uncertain time. It means we have to be prepared psychologically," he said.

"We must also know this is a world where many things cannot be assumed. We have had 50 years of peace, the next 50 years we pray will be peaceful," he added.

During his visit, PM Lee had stressed the importance of openness and multilateralism - as opposed to unilateral actions - in his meetings with Chinese leaders, including in a speech to top executives and leaders at the Boao Forum for Asia in Hainan province.

He also spoke at a dialogue at the DBS Asian Insights Conference in Shanghai on Thursday morning, moderated by Mr Robin Hu, head of Temasek's sustainability and stewardship group

He was guest-of-honour at the annual conference, held in conjunction with the bank's 50th anniversary and its 25th year in China.

At the session, PM Lee pointed out that the potential negatives from a trade war would include the damage to trust between the US and China and their cooperation on global issues such as climate change, extremist terrorism, and North Korea.

In recent weeks, the US has threatened to impose tariffs on Chinese imports, in a bid to protect domestic industries and reduce bilateral trade deficits. China responded by announcing a list of US imports that it intends to impose tariffs of its own on.

These tit-for-tat moves have roiled global markets and stoked fears of a trade war.

At the dialogue, PM Lee said while the Americans have taken certain unilateral moves, the Chinese have responded in a cautious and very carefully considered manner.

He later told Singapore media that Chinese leaders are "concerned trying their best to think through how this can be resolved, trying to protect their position because it's not possible for any country to be in this situation and not have any response whatsoever".

"They have to respond. But at the same time, they do not want to escalate and they hope that something can be worked out which will diffuse the issues," he said.

Asked about the role Singapore could play, PM Lee said Singapore was not a bridge between the two economic superpowers, who have their own links, and "do not lack for contact".

But what both sides need to do is to establish trust and have a direct, candid discussion on their concerns and problems, he added.

"Those are things which have to happen between the participants themselves. Singapore has no role in this, what we can do is we can express our views. Where it is helpful we can tell how things are as we see them, and we hope that our perceptions will be taken as being given in good faith and will be found to be helpful," he added.

Summing up his visit, which he called "very productive", PM Lee said he had very good discussions with all the Chinese leaders he met.

"Our relations are in good order. Cooperation is progressing well and we have reaffirmed what we are doing and committed ourselves to taking our relationship forward,"he said.

On this visit, PM Lee met President Xi Jinping in Boao, Hainan, Premier Li Keqiang and Vice-President Wang Qishan in Beijing, and Shanghai party secretary Li Qiang.

Both countries have also agreed to make China's Belt and Road Initiative (BRI), a megaproject to build trade routes linking Asia, Europe and Africa, a new focus in their bilateral relationship. To this end, both sides signed two memoranda of understanding on bilateral cooperation, including one seeking to expand collaboration between Singapore and Chinese companies in third countries under the BRI.

"I think there's a meeting of minds over what we can do together bilaterally and also on the BRI and the Chongqing Connectivity Initiative. We will take it back and work further on this," he said.

"With the Chinese announcement that they will continue to open up and liberalise decisively, I hope that there will be further opportunities for our entities and our companies."

THE STRAITS TIMES