A constructive solution to the trade dispute between the US and China would not only sustain the world order, but also bring more stability and growth in a world shifting away from unipolarity, said Singapore Deputy Prime Minister Tharman Shanmugaratnam.
But if the deadlock continues, there will be no winners when global supply chains are disrupted and interdependence in trade and investment is reduced, stalling innovation and productivity growth and leading to lower growth all around. "The interdependency between our economies has been at the core of both national and global growth over the last 40 years," he said in a speech as the guest of honour at sovereign wealth fund GIC's 20th anniversary dinner in Beijing on Thursday.
"If constructive solutions are found between the US and China, and WTO rules are updated, the interdependency between the US and China will continue to serve each of their economies well."
Conversely, an economic cold war between the world's two largest economies would compound the growing downside risks for much of the world which, except for the US, is experiencing slowing growth, said Mr Tharman.
The US is at the late stages of its economic and financial cycle, he said, noting that its economy has seen an unusually prolonged stretch of growth coupled with highly-elevated asset prices.
"When the cycle runs out of steam, it could lead to a tumble in the world economy," he said. He added that no one knows when the downturn will come, but when it does policymakers will have fewer monetary and fiscal policy options to counter it, given the high levels of indebtedness and extremely low interest rate environment.
Weaker growth in the emerging world also makes the global economy more vulnerable, he said.
"When the cycle eventually turns in the US, we will not have a strong engine of growth in the emerging world to compensate."
How the current trade tensions are resolved will determine if the result is a lower-growth world, said Mr Tharman, who is also Coordinating Minister for Economic and Social Policies.
"It bears reminding ourselves that much of today's challenge of finding a new balance between the US and China has been the outcome of success in an open, competitive world order," he said.
China grew by plugging itself into the world economy, continually learning, and progressively moving up the value chain. It thus transformed itself, and in the process, contributed significantly to global growth, he said.
"A constructive solution to tensions between the US and China, and a resetting of some of the WTO rules, is critical: not just to sustain multilateralism, but for stability in a more multipolar world, and for the growth that it brings all round."
For Asia, a key priority must be to strengthen long-term investment in its economies, and reduce dependence on short term capital flows.
Domestic reforms are central to this and each nation has to do its part to attract long-term investment, especially by improving governance and legal and regulatory systems, he said.
But much can also be achieved through collaboration bilaterally and across the region.
Singapore and China, for instance, are working to promote connectivity and networks between countries and cities in Asia, as well as to develop the financial ecosystem to support the Belt and Road Initiative.
Government-to-government initiatives like the Chongqing Connectivity Initiative and the multi-modal Southern Transport Corridor linking Chongqing and Guangxi to Singapore and the rest of Southeast Asia will open up opportunities for growth in China, Singapore, and the region as a whole, he said.
Global institutional investors like GIC will play a key role in helping Asia meet its potential for connectivity and openness, he added. "GIC's advantage is its long-term orientation, and its ability to diversify risks globally. It has also built up deep knowledge of the region and close partnerships with other investors in the region, local and international," he said.
These features allow GIC to go beyond short-term investment plays and go for long-term returns, and must remain its strategy, said Mr Tharman.