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Why Asia needs to show the way on trade strategy

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Containers are seen unloaded from the Maersk's Triple-E giant container ship Maersk Majestic, one of the world's largest container ships, at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China, 24 September 2016. (Photo: Reuters/Aly Song).

In Brief

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 post-war trade regime and the primacy the multilateral order delivered are now vastly less certain.


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That was clear for all to see at the Hamburg G20 summit.

The question is how Asia — 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 face of the retreat of leadership by the world’s largest economy. Even if Trump and his White House advisers do not embrace all of the policies that they’ve foreshadowed in trade policy, policy uncertainty will undermine global economic and political security as well as damage US standing in the world.

Trump’s withdrawal from the Trans-Pacific Partnership forewent the potential lift to US incomes which that deal would have delivered mainly through the opening of the Japanese markets to US farm and services trade. The threats to impose trade barriers against US trading partners will actually reduce US incomes. The costs of imposing punitive tariffs on China and Mexico, or slapping tariffs on US imports such as steel are calculable. Now he threatens to tear up the US–Korea free trade agreement. All these actions would damage trade and incomes in US trading partners, but they’ll also reduce American incomes substantially. On one scenario US income will be cut by 1 per cent for every year putative higher US tariffs stay in place — paring close to half a year’s growth from US incomes annually.

US protectionism empowers protectionists globally. But other countries would only aggravate the costs to themselves and others if they retaliated in kind. A better strategy is to maintain open trade in the face of the United States’ self-inflicted harm and, a better strategy still, in coalition with other countries, is to protect the open global trade regime by maintaining the momentum of global liberalisation and economic reform.

The rest of the world has a continuing and strategic interest in new commitments to openness however Trump’s United States might choose to damage itself.

No one country — even China which is the second biggest economy and largest trader in the world —can make the difference alone in holding the line as the United States turns inwards. But there is a powerful interest in pushing collective leadership on trade openness from Asia.

Asia has its problems but it remains the most dynamic part of the global economy. There is intense focus on Asia’s response in the unfolding uncertainty about global trade policy because of its size and importance to future global growth and because of what it can deliver to the world through further opening up.

Asia’s economic dynamism depends, in turn, upon success with its own programs of economic reform, programs that will be made more difficult in a hostile international policy environment. Confidence in the global trading system is important to Asia. It has underpinned the growth of Asian interdependence, economic prosperity as well as its political security.

In guarding these strategic global interests ASEAN has a critical role to play, through the ASEAN-led Regional Comprehensive Economic Partnership (RCEP). RCEP includes not only the ten ASEAN economies but also Japan, South Korea, China, India, Australia and New Zealand. It is a coalition of countries with considerable economic weight, able to deliver a powerful message to the world. But without movement in ASEAN, RCEP is likely to go nowhere.

RCEP trade ministers and officials are now meeting in Manila to meet their deadline to deliver East Asian trade reform this year or wimp it.

It might seem strange in this time of global crisis to turn to ASEAN, dogged as it is by perceptions of weakness and vulnerability and distracted by the political and security problems in the South China Sea. But ASEAN, with Indonesia at its core, is a regional enterprise with a distinctly global outlook and objectives, an experiment in open regionalism that has succeeded. ASEAN’s economic cooperation strategy has persisted despite its perceived weaknesses and slow pace. It is still the crucible for action on regional cooperation within Asia and across the Pacific.

RCEP was designed by ASEAN policy strategists to buttress regional trade reform and lift Asia’s growth potential in the global economy. It is now the only active, credible multilateral endeavour anywhere in the world positioned to deliver significant push-back on the retreat from globalisation, soon.

RCEP is not simply another free trade and investment arrangement. It is structured to be open to easy sign-on by other partners. Importantly it incorporates a cooperation agenda, an essential element in building capacity for economic reform and mutually reinforcing regional development over time. That agenda has an important political and security dimension. That will assist in ameliorating regional tensions and managing relations with the bigger powers, like China, Japan and India (on geo-economic issues such the Belt and Road Initiative for investment in connectivity and geo-strategic territorial issues), and those outside it, like the United States and Europe (in staking out Asia’s interest and claims to ownership in the global public good of an open economy).

RCEP offers ASEAN and the Asian region a critical line of defence against fragility in the global political economy. There is too much at stake strategically at this turning point in global economic history for Asia’s leaders to fail to step up and deploy it.

Peter Drysdale is Emeritus Professor in the Crawford School of Public Policy at The Australian National University and Head of the East Asian Bureau on Economic Research.

4 responses to “Why Asia needs to show the way on trade strategy”

  1. A successful conclusion to the RCEP will be not only important in advancing Asia regional economic integration but also symbolically in sending a strong message to the world that the world most dynamic region namely Asia is not retreating from globalisation.
    However, given the potential damage to the international economies and world economy as a whole of the threatening unilateral actions to its trading partners by the current US administration, there seems to be a need for the rest of the world to consider a common trade defence strategy.
    Is it possible under the WTO framework, or how could that be done?

  2. I agree that RCEP offers the opportunity for ASEAN countries and others to forge ahead with trade agreements which will foster more growth and, even more importantly, regional cooperation. As such a process is complex and time consuming it will require many years to accomplish this. Donald Trump is not going be President for more than 8 years, hopefully less. Thus, the USA can decide to join these efforts at some point in the future when its leadership regains a world wide, more cooperative perspective.

  3. RCEP also enjoys the potential virtue of being able to facilitate habits of cooperation on beyond-the-border matters involving the regulatory agencies of its member countries. Most RCEP countries are still developing economies, which holds out hope that they may be more amenable to adopting flexible approaches to facilitate RCEP-wide inter-agency coherence and cooperation, as each national agency individually evolves towards a common best practices approach.

    As has been witnessed in the case of developed countries, once countries attain wealth and regulation typically gets cast in stone at the national level, it becomes very hard to adjust regulations and develop harmonized outcomes with fellow regulators in developed country trading partners. The US-Canada Regulatory Cooperation Council and the EU-US Transatlantic Economic Council have basically failed to produce substantive outcomes. And TTIP’s regulatory cooperation discussions, the centerpiece perhaps of the TTIP negotiations, also by-and-large seemed stalemated. Hence better for the RCEP countries to have this conversation now and gradually find avenues to concertedly harmonize and lower their behind-the-border barriers.

  4. “It is now the only active, credible multilateral endeavour anywhere in the world positioned to deliver significant push-back on the retreat from globalisation, soon.” – have you not overlooked TPP 11? Member countries are hoping to have agreed the framework by APEC in November.

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