Trade Supply Chains, Kissinger and Trump Effect: NEF Takeaways

(Bloomberg) — Here are some of the key things we learned
on Day One of the Bloomberg New Economy Forum in Singapore:

Stark Warning

Henry Kissinger, the 95-year-old foreign policy guru, had a
blunt message for the packed audience of business leaders,
diplomats and academics gathered to listen: if the U.S. and
China don’t sort out their growing rivalry, they risk destroying
the world order.
“If the world order becomes defined by continuous conflict
between the U.S. and China, sooner or later it risks getting out
of control,” Kissinger said on Tuesday at the forum, which was
organized by Bloomberg Media Group, a division of Bloomberg LP,
the parent company of Bloomberg News.
The former secretary of state to President Richard Nixon
was positive that a worst-case scenario could be avoided.
“The objective needs to be that both countries recognize
that a fundamental conflict between them will destroy hope for
the world order,” he said. “That objective can be achieved and I
am in fact fairly optimistic that it will be achieved.”

Trade Optimism

A top deputy to Chinese President Xi Jinping said Beijing
remained ready to discuss a trade solution with the U.S., but
cautioned the country wouldn’t again be “bullied and oppressed”
by foreign powers.
Vice President Wang Qishan, one of China’s best-known
economic reformers, said trade was still the “anchor and
propeller of China-U.S. relations.” He prefaced his support for
talks — a refrain Chinese leaders have repeated for months —
with a warning about the dangers of “right-leaning populism” and
“unilateralism.”

Trade Pessimism

Not everyone is convinced that a trade deal is doable.
“We’re going to see these two sides continue to dig in
their heels — both sides still think they have the upper hand,”
Scott Kennedy, deputy director of China studies at the Center
for Strategic and International Studies in Washington, told
Bloomberg Television at the NEF. “For President Trump, even
though he’s signaling that it’s possible they want a deal,
there’s actually no monster benefit to him economically or
politically. So I think they’ll continue to do this dance and
all of us will continue to watch.”

Trump Effect

As delegates await the outcome of the U.S. midterm
elections, former Australian Prime Minister Kevin Rudd had this
to say about America’s withdrawal from international structures:
“The world including China looks at that and says, ‘Hmm, this is
different, this is new.’ We do not now know, including China,
what America believes is its future global role.”
Rudd also sounded downbeat on the U.S.-China relationship.
“There is a deep realization in Beijing that there is a
fundamental shift in the American take on China,” he said. “They
see China no longer as a status quo power but as changing the
international realities.”

Too Big To Fail

The World Trade Organization must be reformed in order to
shore up the global trading system, and China has a major role
to play in that process, former EU Trade Commissioner Peter
Mandelson said on a panel. China’s juggernaut economy poses a
huge challenge to the international trading system and the
nation needs to do much more to help reform the WTO in order to
avoid a “Trumpian disaster,” he said.
“The WTO has almost become too big to avoid failing,” he
said.
Fellow panelist Frederick Smith, the chairman and chief
executive of FedEx Corp. channeled economist Joseph Schumpeter
and his theory of creative destruction, and said the “proven
formula for success” for world trade is zero tariffs and
barriers. He said the solution to the growing global unease
about economic inequality may not lie with governments, pointing
to the millions of dollars his companies are investing in staff
to create the workers of the future.

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Catastrophe

Yellen Speaks

Former Federal Reserve Chair Janet Yellen warned that
“regulations are in many ways burdensome and probably need to be
revisited, but now is not the time to loosen the safeguards”
that were put in place after the last financial crisis. She gave
a nod to the benefits the U.S. labor market was enjoying at full
employment, especially for more vulnerable workers, and noted
that the unemployment rate for black Americans was hovering
close to a historic low.

Supply Chains

While more companies are reconsidering their supply chains
because of the trade war, moving plants out of China will be
costly and time-consuming — and it’s not always simple to find
suppliers in other countries. That was one of the lines of
discussion on a panel featuring company executives including
John Flint, chief executive officer of HSBC Holdings Plc. Supply
chains are very complex systems and the U.S.-China trade
conflict is just one variable among many, he said. Still, rising
tariffs will bring pain, with Flint saying: “A 10 percent shot
is digestible. A 25 percent shot is of a different magnitude.”
Marjorie Yang, who heads Esquel Group, had a different
take. Her company is one of the world’s leading producers of
premium cotton shirts, with production facilities in China,
Malaysia, Vietnam, Mauritius and Sri Lanka.
“With this trade war, everyone is scared. That’s good,” she
said. “I’m using this trade war as a shock effect. We’ve been
trying to get people to change the way we manage.”
FedEx’s Smith said in an interview with Bloomberg TV that
the company is in talks with some of its customers looking to
move part of their supply chain out of China to other parts of
Asia, such as Vietnam and Thailand.
Kerry Logistics Network Ltd.’s Chairman George Yeo echoed
those views, saying the U.S.-China trade dispute has accelerated
the outflow of investments from lower-level manufacturing in
China, a process that had already begun because of rising costs
in the country.

Governance

Anwar Ibrahim, Malaysia’s leader-in-waiting, spoke of the
need for authentic democracy and governance — topical issues
for a country dealing with the fallout of a major corruption
scandal. The current president of the People’s Justice Party,
Anwar said it would be “inexcusable” if Goldman Sachs Group Inc.
were complicit in the scandal surrounding state investment
company 1Malaysia Development Bhd., calling it a failure of
governance by financial institutions.