(Yicai) Jan. 21 -- As the world faces uncertainty over the future direction of US policies, the ASEAN+3 region, which consists of the 10 member states of the Association of Southeast Asian Nations as well as China, Japan and South Korea, will be able to effectively cope with any challenges due to its strong economic fundamentals, the chief economist of the ASEAN+3 Macroeconomic Research Office told Yicai in an exclusive interview.

Due to good employment levels and low inflation, the ASEAN+3 region is expected to maintain economic growth above 4 percent in the near future, Hoe Ee Khor said. Strong domestic demand as well as a rebound in tourism and the recovery of the semiconductor cycle are driving tech exports.

Deep regional economic integration will help the region resist external pressures, Hoe said, after Donald Trump levied a 25 percent tariff on goods from Mexico and Canada, starting Feb. 1, on the first day of his second term as US president yesterday. Trump has previously promised to impose tariffs on global imports.

Excerpts from the interview are given below:

Yicai: How might Trump's potential tariffs reshape trade dynamics between the ASEAN+3 countries and the US?

HEK: Trump's potential tariffs have led to significant uncertainty, but it is too early to assess the impact. If the tariffs come into effect in the second half of the year, growth in the ASEAN+3 region is expected to dip by 0.1 percentage point. And if other countries take retaliatory action, it may tumble by between 0.3 and 0.4 percentage point.

Yicai: Which industries in the ASEAN+3 region will be under the greatest pressure if Trump imposes tariffs? How will such policies affect inflation and economic growth in the US? How will these protectionist measures affect investment flows?

HEK: The electronics industry is likely to bear the brunt, as electronics account for 40 percent of US imports from the region. The uncertainty surrounding policies will exacerbate volatility in the business environment and affect private sector investment. For the US economy, a tariff-induced rebound in inflation may prompt monetary policy tightening, leading to slower economic growth, which in turn will suppress export demand in the ASEAN+3 region.

It is important to note that investment decisions are influenced by many factors, not just US protectionist policies. For example, ASEAN economies have become a preferred destination for foreign investment because of their strong industrial base, growing domestic markets and stable politics. In addition, the region's rapid growth and well-developed infrastructure provide it with a competitive advantage in attracting investment, which also helps to mitigate the risk of foreign capital outflows.

Yicai: Is it possible for ASEAN+3 countries to deepen regional trade ties to mitigate external shocks?

HEK: Geo-economic fragmentation highlights ASEAN+3’s strategic importance in global supply chains. If protectionism escalates, global trade and investment will be greatly affected. To this end, ASEAN+3 needs to implement flexible and effective strategies to enhance industrial competitiveness, maintain open policies, and accelerate digital transformation, the application of technology and investment in human capital.

Yicai: In what ways can the ASEAN+3 region deepen regional cooperation?

HEK: In terms of regional cooperation, there are three key areas. The first is climate change and green transformation, which require a coordinated regional response. The second is digital transformation, to strengthen cooperation in areas such as cross-border data flows and digital payment systems. And the third is to take a balanced and neutral stance to enhance the resilience of supply chains amid geopolitical changes.

Regional trade agreements such as the Regional Comprehensive Economic Partnership provide a framework for deepening integration, and ASEAN+3 is also expanding partnerships and consolidating its position as a global trade hub, but it needs to address issues such as non-tariff barriers.

Yicai: What policy measures can ASEAN+3 economies take to mitigate the impact of a new wave of risks?

HEK: In terms of policy measures, ASEAN+3 economies have shown strong resilience in recent years and have successfully coped with shocks such as the Covid-19 pandemic. With a solid economic foundation, it can effectively respond to uncertainty in US policies.

As companies seek to diversify their production bases, their strategic position is becoming increasingly important. The growth of the middle class is driving consumption in the region which will support it in resisting external pressures. Thanks to deep market integration and regional framework construction, ASEAN+3 has sufficient fiscal and monetary space to take countercyclical measures if necessary.

Despite global challenges, regional economic integration continues to deepen. ASEAN+3 is expected to achieve long-term sustainable development by demonstrating resilience in response to challenges and strengthening cooperation in multiple fields.

Editor: Kim Taylor