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Trump's threat to the global trade regime undermines economic and political security

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In Brief

Last Thursday Donald Trump declared steel imports to the United States were a threat to US national security.


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While he said that this was not just a problem of Chinese steel — which accounts for just 2.6 per cent of US steel imports, not 26 per cent of the market as Secretary of Commerce Wilbur Ross reckons — the notion that national defence is at risk because a modest proportion of national procurements is secured more efficiently from abroad flies in the face of economic logic. Such simple-minded security logic also needs to be carefully tested. China procures 81 per cent of its iron ore supplies from abroad, around 62 per cent of that from Australia alone.

The international trade regime and its robust protections, in law and through open markets, make this structure of trade interdependence an economically and politically wise choice.

The election of Mr Trump to the White House has changed many things, but perhaps none so drastically as the international trade policy environment. Brexit in Europe adds to the problem that Trump has created. Some may think that the Trump shock is a passing moment and US leadership in international trade and economic policy can be quickly restored. But there is little doubt that the certainties that the post-war trade regime, and the primacy the multilateral order, delivered are now vastly less certain.

The question we confront now is how the world — that has benefited so much from the certainties of economic openness that the WTO and other global institutions have provided — can protect its strategic economic and political interests in the absence of the leadership of its largest economy.

This is no passing moment in the challenge to the international trade regime on which we rely for economic and political security. The idea that the United States hasn’t done very well out of the post-war regime and that the world now owes the United States a living might seem beyond strange to most people outside America. But it is an idea that clearly has political resonance in the US polity because of the entrenched structural problems in the US economy. Questions about the equitable distribution of the gains from international trade are not narrowly related to how trade increases incomes in some sectors but raises competition in others. They are related to the way in which social institutions like education, social security, portability of employment benefits and the availability of income compensation don’t ensure that the benefits of higher incomes through international trade are distributed across the communities affected by its costs.

Whether Trump backs off — and back off there has and will continue to be —  or whether change has to await the demise of his administration, these problems are not going to go away quickly, even under a new presidency. They are likely to continue to fuel American antagonism towards economic openness. There is little comfort in observing that Trump’s initial positions on threats to the trading system may not be his final positions. The final outcomes are still likely to threaten our interests in the global trade and economic regime.

The response to this new circumstance needs to start with recognition of the importance of the global economic rules to both economic and political security. This regime has been critical to our collective prosperity, especially in the Asian region where skewed resource endowments makes prosperity impossible without deep trade dependence and removes the threat of political conflict and insecurity over unreliability in international procurements of goods necessary to sustain good standards of living.

As Razeen Sally says in this week’s lead, ‘President Trump wants to renegotiate the North American Free Trade Agreement (NAFTA), has threatened high tariffs against China and against US companies that relocate production abroad, and says he will ignore the World Trade Organization (WTO). The US’s other major trade initiative, a free trade agreement with the EU, is either stalled or dead. Trump’s senior trade policy appointees are fellow economic nationalists. All are obsessed with trade deficits, China-bashing, and industrial policy to revive United States manufacturing’. Sally sees Trumps withdrawal from TPP as a dangerous signal of disengagement from Asia. Without US leadership on economic openness, the world economy will certainly be worse all-round and more unstable.

Even while Trump and his White House advisers embrace the madness that would undermine global economic and political security and damage US standing in the world, the rest of the world has a continuing and strategic interest in new commitments to openness.

No one country, even China which is the second biggest economy in the world, can make the difference alone as the United States goes inwards, but there is strong interest in pushing collective leadership from Asia. The ASEAN-led Regional Comprehensive Economic Partnership (RCEP) is a primary vehicle for achieving this goal.

East Asia must now champion the meta-objective of securing an open global system and demonstrating as powerfully as is possible that that’s what Asia stands for and that’s what Asia will deliver through successful conclusion of the RCEP negotiations and ongoing economic cooperation that is open to the world beyond our region — including the United States.

The East Asian negotiations are the main if not the only game in the world that has the weight and the concentration of interests to help make a difference. It also provides the route to eventually re-engage the United States.

The United States may yet turn out to be the ‘indispensable nation’, but Asia and the rest of the world can no longer afford to bank on it.

The EAF Editorial Group is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.

One response to “Trump’s threat to the global trade regime undermines economic and political security”

  1. The RCEP may be the biggest preferential game in town – but what is the strategy for joint leadership in the WTO?

    Not in a mighty Round, but to think through the main game of preserving at least a memory of Article 1;
    and dealing with new strategic chellenges, such as digital connectivity?

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