Smart Asia Pacific pivots beyond a Trump-led America

April 20, 2018

by Pradumna B Rana and Xianbai Ji, RSIS

http://www.eastasiaforum.org/2018/04/17/asia-pacific-pivots-beyond-a-trump-led-america/

The United States President Donald Trump thinks it is easy to win trade wars. It takes a genius like him to figure it out. No one in the United States dares to challenge his doctrine

 

US President Donald Trump has taken a radically protectionist approach to trade. Trump has launched a series of unilateral moves including increasing tariffs on steel and aluminium imports on national security grounds and announcing plans to impose tariffs on US$60 billion of Chinese imports.

Uncertainties regarding continued access to the US market have forced Asia Pacific countries, for whom trade is an economic lifeline, to pivot beyond Trump-led America by adopting a three-pronged policy response: the acceleration of mega free trade agreements (FTAs), the enhancement of regional connectivity and the deepening of inter regional economic cooperation.

Japan and Australia have taken the lead in pushing through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11) without the United States. This agreement was signed on  March 8, 2018 and is expected to come into effect in early 2019, once it is ratified by at least six of the 11 members.

Although the CPTPP suspends or amends 22 US-supported provisions from the original Trans-Pacific Partnership, the CPTPP is still a gold standard agreement. It eliminates tariffs on 95 per cent of merchandise trade between the agreement’s parties while containing many ground-breaking rules relevant to 21st century trade. The CPTPP offers large economic benefits even without US participation.

Several other countries may also join the CPTPP. South Korea says it is assessing the CPTPP’s effect before making a decision. Indonesia, Thailand and even the United Kingdom have expressed interest in joining the accord. Trump has said that he is open to re-joining the trade agreement but only if it involves a ‘better deal for the United States’. This may not happen any time soon.

Asian countries have also accelerated negotiations for the ASEAN-led Regional Comprehensive Economic Partnership (RCEP). If the CPTPP is successful, it should give a boost to RCEP negotiations. The negotiating parties are optimistic that RCEP can be concluded in 2018 under Singapore’s ASEAN chairmanship. To fast-track RCEP, the idea of an ‘RCEP minus X’ formula is gaining traction.

Since RCEP is a mega FTA comprising mostly developing countries, it would not be as transformative as the CPTPP. But its conventional free trade agenda would still confer significant benefits. We estimate that in the medium term, RCEP would generate welfare gains of US$127 billion, compared to US$35 billion from the CPTPP. Cambodia and Thailand are likely to benefit the most from RCEP.

Asia Pacific countries have also stepped up efforts to enhance regional connectivity through infrastructure development, as a second prong to offset US trade protectionism. In 2016, ASEAN unveiled its Master Plan on ASEAN Connectivity. The plan envisions a ‘seamlessly and comprehensively connected and integrated ASEAN’ by 2025. It includes several major region-wide infrastructure projects such as the ASEAN Highway Network.

But the headline-grabbing infrastructure initiative in the region is China’s Belt and Road Initiative (BRI), spearheaded by Chinese President Xi Jinping since 2013. The BRI aims to connect more than 70 countries across the Afro–Eurasian supercontinent via large-scale projects including railways, roads, bridges, ports and pipelines. Despite criticism of a lack of transparency and of China’s debt-trap diplomacy, many developing countries in need of investment finance see the BRI as an attractive proposition.

Figure It out, Guys.

Two connectivity proposals can be viewed as alternatives to the BRI. India is collaborating with Japan under the Asia–Africa Growth Corridor proposal to develop maritime connectivity across Africa, India and Southeast Asia. Australia, India, Japan and the United States are involved in another grouping known as the Indo-Pacific Partnership. Both proposals remain at the consultation stage.

The third prong of the Asia Pacific response to rising US protectionism is the promotion of inter-regional economic cooperation.

On March 5, 2018, the Philippines ratified its FTA with the European Free Trade Association. Australia and New Zealand hope to start trade negotiations with the European Union this year, while ASEAN hopes to resume its stalled region-to-region FTA negotiations with the European Union in the next few months. South Korea signed FTAs in February 2018 with a number of Central American countries. Singapore is negotiating an FTA with the Pacific Alliance (Chile, Colombia, Mexico and Peru).

What shape could the evolving regional trade architecture take?  Countries would benefit from joining more than one mega FTA. For example, Vietnam’s real GDP would increase by 1.5 per cent from joining the CPTPP or 3.3 per cent from joining RCEP. If Vietnam joins both, its real GDP would increase by an estimated 4.2 per cent.

Once the CPTPP is ratified, countries party only to the CPTPP (Canada, Mexico, Peru and Chile) should seek RCEP membership. Similarly, the countries party only to RCEP (Cambodia, China, India, Indonesia, Laos, Myanmar, Philippines, South Korea and Thailand) should seek CPTPP membership. This would result in a bloc in the Asia Pacific of 20 countries with membership in both the CPTPP and RCEP.

The advantages of dual membership are access to Chinese and Indian markets through RCEP and valuable exposure to high-quality trade rules through the CPTPP. Countries would not have to choose sides between the Japan- and Australia-led CPTPP and the ASEAN-led RCEP.

Ironically, President Trump may have done more to promote regional and interregional cooperation in the Asia Pacific than the region would have achieved independently.

Pradumna B Rana is Associate Professor at the S Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore.

Xianbai Ji is a PhD candidate at RSIS holding the Nanyang President’s Graduate Scholarship.

Earlier versions of this article appeared here on RSIS and here on the Council on Foreign Relations website.

 

Trump’s Trade War in Perspective

March 13, 2018

By Anis Chowdhury and Jomo Kwame Sundaram

 

 

Sydney and Kuala Lumpur – US President Donald Trump’s recent announcement of steep tariffs on steel and aluminium imports seems to have shocked US allies, even though these were among his 2016 election promises. The European Union (EU), Australia and Canada reacted sharply, in contrast to the more restrained response from China, the main target of earlier actions.

 

During his 2015-2016 election campaign, Trump repeatedly claimed that the US is being unfairly treated. He reiterated this recently, accusing the EU of being “particularly tough on the United States”, adding “They make it almost impossible for the United States to do business with them. And yet they send their cars and everything else …”.

This trade war has been raging for some time, especially since the 2008-2009 global financial crisis (GFC). The World Trade Organization (WTO) has been quite helpless in preventing the resurgence of protectionism, or stopping developed countries from effectively sending the WTO’s Doha Development Round (DDR) into a coma.

Slowing output, trade: chicken and egg?

The WTO’s World Trade Statistical Review 2017 showed that world merchandise trade growth slowed down from 2.6 per cent in 2015 to 1.3 per cent in 2016, the slowest since the GFC. World merchandise trade grew about 1.5 times faster than output after the Second World War, accelerating to more than twice in the 1990s. After the GFC, this ratio dropped to around one, and then to 0.6 in 2016, for the first time since 2001.

Explaining the trade growth slowdown by blaming prolonged slower global economic growth ignores the output-trade growth dialectic. It does not explain why trade expansion has been faster – or slower – than output growth at different times. After all, trade liberalization was associated with general economic liberalization and globalization despite slower world output growth during the 1990s.

The relationship between the output growth decline and the trade growth slowdown since the GFC raises similar doubts. Rising protectionism may explain trade growth falling below tepid output expansion. Yet, increasing protectionism is not only a response to slower growth, but may also contribute to it.

According to research by law firm Gowling WLG, the world’s top 60 economies adopted more than 7,000 protectionist trade measures between 2009 and 2016. It also found the US and EU mainly responsible for harmful trade policies! Since the GFC, the EU has adopted some 5,657 trade-restrictive measures, while the US has introduced 1,297 measures ‘harmful’ to international trade.

According to research by law firm Gowling WLG, the world’s top 60 economies adopted more than 7,000 protectionist trade measures between 2009 and 2016. It also found the US and EU mainly responsible for harmful trade policies! Since the GFC, the EU has adopted some 5,657 trade-restrictive measures, while the US has introduced 1,297 measures ‘harmful’ to international trade.

According to the WTO, G20 economies had implemented 1583 restrictive trade measures by October 2016 compared to around 300 eight years before, i.e., about 1300 more. Between mid-October 2015 and mid-May 2016, G20 economies applied 145 new trade-restrictive measures – averaging almost 21 monthly, up from 17 between mid-May and mid-October 2015. The latest WTO report observed that G20 economies have implemented less traditional and more opaque measures, making it more difficult to monitor and report.

All this despite G20 leaders repeatedly reiterating the mantra from their first Summit in Washington DC in 2008 declaring: “We underscore the critical importance of rejecting protectionism and not turning inward … Further, we shall strive to reach agreement … that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. ….. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome”. As is well-known, subsequent actions did not match these words.

An earlier WTO report with wider geographic coverage found 2,557 new trade restrictions by October 2015, up 17% from the previous year. Countries have increasingly resorted to discretionary, non-transparent, non-tariff barriers (NTBs), instead of more traditional, transparent trade barriers such as tariffs. These NTBs include subsidies, domestic content requirements, health and safety requirements, state-owned enterprises and public procurement. They involve much discretion, and greatly affect developing country exports.

Trump’s difference

So, what is so special about Trump’s announcement? With characteristic bluster, he announced transparent tariff measures – rather than non-transparent NTBs. Equally significantly, they were to be imposed on all others – US ‘friends’ and ‘foes’ alike, without discrimination. The Trump difference lies in his ‘America First’ brazenness. Belatedly realizing the likely political impact of treating all other parties equally, Trump later announced possible exemptions for ‘national security’ reasons.

Frustrated by the slow progress of protracted multilateral negotiations, many countries have turned to bilateral and plurilateral free trade agreements (FTAs), especially after the Obama administration and European Trade Commissioners put the DDR on hold. As Jagdish Bhagwati has long argued, such non-multilateral FTA ‘termites’ not only undermine multilateral solutions, but may – ironically – slow global trade growth.

The plurilateral Trans-Pacific Partnership (TPP) and its replacement, the Comprehensive and Progressive TPP, for the 11 other TPP countries after the January 2017 US withdrawal, have mainly been about non-trade issues. These include extending intellectual property protection and non-judicial investor-state dispute settlement, besides limiting state-owned enterprises and public procurement. Such measures involve other types of protectionism sacrificing the national interest, particularly of developing countries, while benefiting influential transnational corporations.

If the developed world really wants to avoid all-out trade war, they must return to and advance multilateralism for sustainable, comprehensive solutions. Fairly concluding the Doha Round, while keeping its development promise, as pledged by G20 leaders, will be prerequisites in this endeavour.

Trump’s Trade War in Perspective