March 18, 2018
Economists Dr Mari Elka Pangestu (above) and Dr. Peter Drysdale
Australia has been an ASEAN dialogue partner since 1974, an acknowledgement of the centrality of ASEAN to Australia’s regional security. There have been ASEAN summits with Japan, China, the United States and India but the ASEAN summit in Sydney this weekend is the first in Australia.
The Host, ASEAN-Australia Special Summit 2018, Prime Minister Malcolm Turnbull
The summit comes at a time when leaders in ASEAN and Australia confront a number of strategic choices. None is more important than how they respond to the threat to the global trading system, the foundation of East Asia’s prosperity and a critical element in its security.
ASEAN centrality has been an organising framework for Asian economic policy cooperation over the past half century.
The retreat of the United States under President Trump from leading the global economic order; the rise of China with its assertive stance on the South China Sea and its infrastructure development ‘carrot’ in the Belt and Road Initiative; a putative ‘Quad’ configuration of Indo-Pacific power around the US, India, Japan and Australia; and the North Korea crisis all present significant challenges to ASEAN’s central role in the region.
Last week, Mr Trump fired the first shots in what could become a global trade war with the imposition of 25 per cent tariffs on steel imports and 10 per cent tariffs on aluminium. The action, taken under the Section 232 national security provisions of US trade law, risks provoking tit-for-tat retaliation by trading partners who, unlike Canada, Mexico and Australia, aren’t able to negotiate exemption from its impact. It also risks the WTO rules-based trading system.
Mounting uncertainty has affected confidence in trade and economic recovery since Trump translated his campaign protectionist rhetoric into an ‘America First’ agenda. But the White House announcement last week threw the international system into chaos. If Trump’s imposition of these tariffs on a flimsy national security pretext does not outright flout the rules of the WTO, then it at least flouts its widely shared norms.
The response from the European Commission was to ‘do the same stupid things to respond to stupid things’ — promising retaliatory tariffs on a range of US exports into Europe, from Harley-Davidson motor bikes to bourbon whisky. The tariff imposts also launched a process in which partners like Australia successfully begged exemption on various grounds both sound and spurious, all of which are in clear violation of the understanding that trade will be conducted under internationally agreed rules, not ad hoc bilateral deals. That’s the beginning of the rot; it may be a short-term tactical victory for countries like Australia, but it is not effective trade policy strategy.
What can be done now?
Australia’s Prime Minister Malcolm Turnbull (R) waves with ASEAN leaders (L to 2nd R) Laos’ Prime Minister Thongloun Sisoulith, Indonesia’s President Joko Widodo, Cambodia’s Prime Minister Hun Sen, Brunei’s Sultan Hassanal Bolkiah and Thailand’s Prime Minister Prayuth Chan-O-Cha for a family picture at the ASEAN-Australia Special Summit in Sydney on March 17, 2018.
The strategic objective is to keep the WTO system alive in the face of a potentially mortal threat. The United States is playing itself out of the system. Learning to live without the United States as a rules- and norms-enforcer won’t be easy, but it is the only response that will protect the system and avoid the large-scale economic cost and the dangerous political consequences of an escalating trade war.
Asia’s response to the Trump trade threat is critical for the international system. Asia’s prosperity and political stability depends critically on its integration into the global economy through the rules-based trading system which has underpinned the growth of Asian interdependence, Asia’s economic prosperity and its political security.
China is in Trump’s cross hairs as ‘the cause of US trade deficits because of its violation of trade rules’. But China is also a crucial stakeholder in the rules-based system through its largely faithful observance of the protocols of its accession to the WTO in 2001 and the huge trade in Asia and around the world that has been built on that.
Locking in China’s entrenchment to the WTO system — and resistance to the temptation to take retaliatory actions in the face of Mr Trump’s trade antics — is thus a major element in the system’s defence.
As China and the US stare each other down with a potentially devastating trade war on the horizon, it may seem strange to turn to ASEAN, but it has a central role in the collective response to Asia’s present predicament. That is because of ASEAN leadership in the strategic conception and negotiation of the Regional Comprehensive Economic Partnership (RCEP) in East Asia.
RCEP includes not only the ten ASEAN economies but also Japan, South Korea, China, India, Australia and New Zealand. It’s a coalition of countries with the economic weight to deliver a powerful message to the world. The signing of the Trans-Pacific Partnership agreement without the United States in Chile last week was a start in defence of the global trading system. But that agreement doesn’t include China or most of ASEAN and is not systemically important enough to make the difference. RCEP is.
The threat to the multilateral trading system is more important than the still unfinished business on the Korean peninsula and worries about the South China Sea.
ASEAN, with Indonesia at its core, is a regional enterprise with a distinctly global outlook and objectives. Intra-regional trade is only 24 per cent of ASEAN’s total trade but it is deeply integrated into trade globally.
The Australia–ASEAN summit is a singularly important opportunity for setting out strategic interests in these economic dimensions of regional security and ASEAN’s role in achieving them. A declaration from the Sydney summit that commits to avoiding retaliation to US protectionism and elevating the momentum in RCEP will help cement a broader coalition of Asian economies, including China, Japan, South Korea and India, to holding firm on the international trading system.
It will also ensure ASEAN’s continuing centrality in cooperation across the region.
Dr. Mari Pangestu is former Indonesian Trade Minister and Professor at the University of Indonesia. Dr. Peter Drysdale is Professor of Economics and Head of the Asian Bureau of Economic Research and Co-Editor of East Asia Forum in the Crawford School of Public Policy at the ANU. This article was also published in the Australian Financial Review on 15 March 2018.