The ECCT arranged a Premium Event lunch on the topic "Asia macro outlook – Transition through uncertainty", featuring guest speaker Yao Wei, Head of Research for Société Générale APAC. In her presentation, the speaker gave her views on prospects for the global economy with a special focus on China and Taiwan. Among other topics, she talked about the outlook for the Chinese economy and its global implications, the great reshuffling of trade, capital and supply chains, and its implications for Taiwan.

The speaker began with a summary of global growth and inflation forecasts. While the US labour market is cooling off, she said that it is not recessionary and wages are still rising. In addition, while consumption momentum is softening, it is not collapsing. Moreover, inflation has been falling steadily in recent months, which provides reassurance to the US Federal Reserve that it is time to cut interest rates. SG is expecting the Fed to cut interest rates gradually, starting with a quarter percentage point cut at its next meeting in September. The corporate sector is still resilient, as evidenced by healthy profit margins. Yao said that many corporations were not negatively impacted by rising interest rates, since many of them borrowed liberally when rates were low and parked unspent funds in money markets, which have offered increasing returns as interest rates were raised over the past few years.

Comparing the economic policies of the 2024 US presidential election candidates, Donald Trump, should he be elected, is expected to extend tax cuts set to expire and cut corporate tax rates further while the Democratic Party’s candidate, Kamala Harris has said that she would increase corporate tax rates, offer incentives for first time home buyers and increase tax credits for families with children. Trump is also expected to increase or impose large tariffs on imports, especially those from China, while Harris is expected to be more selective on the use of tariffs. Trump’s tariffs are expected to increase inflation for US consumers and has been described as a tax on consumers by Democrats. On energy policy, Trump has said that he would reprioritise fossil fuels while Harris would continue to support the green transition with targeted public investments in infrastructure, semiconductors, clean energy and climate security. On foreign policy, Trump is expected to pursue a harsh policy of containment of China, with more stringent control of exports to China, while Harris is likely to be much more selective, using the so-called "small yard high fence" approach, which would not interfere too much in most trade with China and focus only on restricting trade in advanced technology and strategic sectors.

Many economists are worried about the US’s rising debt trajectory, especially since the US is seeing higher budget deficits even when the economy is doing well, and neither the Republicans nor the Democrats have said very much about curbing the national debt. According to the speaker, the US is already spending more on interest payments on the national debt than on national defence.

As for how higher tariffs would affect China, Yao noted that in Trump’s imposition of tariffs during his term in office, the depreciation of the yuan largely offset the impact of the tariff hikes. This is unlikely to happen again given the fact that Chinese authorities appear reluctant to let the yuan depreciate any more.

In Asia ex-China, growth momentum continues on the back of rising exports, manufacturing momentum and domestic demand. Yao said that while there has indeed been a shifting of global supply chains, it would be an exaggeration to call this deglobalisation.

As for China, according to Yao, things are actually going according to plan, as viewed by the Chinese Communist Party leadership, which is less concerned about the falling GDP growth rate, partly as a result of the property market crash, and more concerned about growth in the manufacturing sector, which remains strong. One problem with this approach is that high end manufacturing produces fewer and fewer jobs as the level of automation increases. China’s lack of a social safety net leads to lower consumer spending and excessive savings. Other consequences are a widening wealth gap and a glut of capacity and production that is too large for China and its trading partners to absorb, leading to a deflationary environment. Rising trade surpluses with trading partners also create tensions with its partners, which has led them to respond by imposing tariffs.

The speaker believes that reshuffling will be a long-term trend. While there has been a shift away from investment in China, legacy capacity in China is too large for any country to replace it. China’s biggest advantage over competitors is scale. Moreover, besides western firms, Chinese firms are also expanding investments and capacity overseas, in emerging markets and even developed markets, such as Europe. In addition, China is becoming more self-sufficient. It is importing less and less from other countries, apart from raw materials. All this means that the great reshuffling is good for emerging markets benefitting from the shift away from China but also that China can adapt the new environment through its existing advantages and by following the geographical diversification trend.