The U.S.-China trade dispute is worrying because its hit to market confidence may be more significant than any real economic damage it inflicts, said Takehiko Nakao, president of the Asian Development Bank.
A rise in trade tensions — excluding any fallout to the automotive trade — will shave 1 and 0.2 percentage points off the growth rates of China and U.S. respectively, Nakao told CNBC on Thursday at the Annual Meetings of the International Monetary Fund and World Bank Group in Bali.
However, if it escalates further, "people will start worrying about the credibility" of the multilateral free trade system that the world has believed in for so long, he warned.
"They're so connected through the global supply chain ... But if we start worrying about it, there'll be a lot of impact on the sentiment of consumers and investment," Nakao said.
The ADB president urged for the two to come to a deal.
"We must manage the trade, we must manage the feelings of national identity and so on," he said.