Aaditya Mattoo, the chief economist for the EAP region, said that global knowledge generation would be weakened as a result of a potential decoupling.
“Two biggest trading partners are drawing apart,” he said, noting that it would cause several key problems in the region.
“A shift from rules-based to politically motivated trade is (not) good for long-term growth and investment,”
The foremost issues are potential restrictions on technology flows between the two countries, which would affect the EAP region which relies heavily on both for their own innovation.
Export or import restrictions would affect more than just bilateral trade, particularly if there are rules imposed on the ultimate destination or source of goods and services.
“(This) can significantly disrupt trade, especially in a region which is deeply integrated in global value chains both with the US and China,” said Aaditya.
He added that at a time when innovation and access to climate technologies were necessary, restrictions could have a detrimental impact on the growth and already-slowing productivity of EAP countries.
“The best way to respond to a retreat from globalisation is to reform one zone trade policies,” he said.
In the short term, Aaditya acknowledged there may have been some export benefits to the region.
For example, Vietnam may have stepped into China’s shoes and exported more to the US. However, in order to do this, they needed to import more from China.
In effect, the importance of both players is not diluted as they drift apart.
“The best response is not to join one or the other exclusively, but to deepen and strengthen relations with both. It’s better to be a hub than to be a spoke,”
Facing challenges at home
The World Bank’s update finds that countries in the region, which include Malaysia, Indonesia, Vietnam, and the Philippines are ageing much faster than rich countries did.
Aaditya remarked that whilst most Western countries took 50 to 60 years to transition from “ageing” to “aged”, the EAP region was likely to take 20 years.
“Our incomes are also lower than in the Western countries when they aged,” he said.
As a result, countries in the region will find that pensions have a higher burden.
Nonetheless, the EAP region is uniquely positioned as both contributing to and vulnerable to climate change.
Investment in adaptation methods is necessary, though Aaditya acknowledged it would be difficult for governments to foot the bill themselves.
However, the investment is expected to be worthwhile as it would deliver a “triple dividend” of avoiding losses, inducing economic benefits and creating social benefits for citizens.
The World Bank’s report finds that early warning systems which save lives and assets are worth at least ten times their costs.
Furthermore, climate-resilient infrastructure may cost around 3% more, but has a benefit-cost ratio of around 4:1.
This underscores the need to prioritise expenditure on climate mitigation in the region, as it is ultimately more beneficial in the long run.