The election of President Trump has introduced huge global uncertainty into international economic policy at a time of major changes in the global balance of power, when stability and certainty are at a premium.
Trump’s America puts the US-created and led global economic order under threat.
There is no region in the world to which this threat is more dangerous than it is for Asia. The foundation of Asia’s prosperity, its economic integration and political stability is the global liberal economic order. The US military–security alliance framework provides a measure of political insurance but more than that, it is confidence in the open global economic order that has made partners out of enemies and delivered economic security across the Asia Pacific.
If Trump’s America destabilises the global rules-based economic order by starting a trade war or significantly undermining the WTO regime, only a coalition of open countries with enough economic weight will be able to push back and maintain confidence in the system. Some of the candidates for such a coalition are obvious. They include Germany, Japan, Canada and Australia but they also need to include Asia’s large economies, especially China, given its importance to trade, its economic weight, and its interests in an open system.
Deepening regional and global economic integration, at the same time as spreading the benefits from trade more equitably within countries, is the best defence against protectionism. That is where the policy priorities now lie. Economic integration in East Asia needs to proceed so that the United States is kept engaged and the region remains open to full US participation when it is able, however frustrating the process of dealing with Mr Trump is likely to be immediately.
Forging ahead with regional arrangements in Asia that divert commerce away from the United States (with stringent rules of origin or distorting preferential arrangements) or that are inward-looking and make it difficult for the United States to eventually join, would be damaging and bring large risks. The United States is still the largest global economy, a major market, a leader in technology and a major financial centre. The idea of the Asian economy decoupling from the United States is no more sensible today than when it was a subject of debate prior to the global financial crisis.
The best thing countries in Asia can do in their own best national interests in the face of Mr Trump’s protectionist threat is to undertake liberalisation and reforms that promote further international economic integration in a manner that supports the global system and maintains openness towards the United States.
This is in fact the history of economic cooperation in the Asia Pacific. Due to its diversity in stages of economic development and economic systems, as well as the lack of political trust between many states due to unresolved history and regional rivalries, the East Asian economy was built upon the idea of open regionalism. Regional economic integration has not come at the expense of economic ties beyond the region. The final markets for Asian production networks and value chains were largely and initially in the United States and Europe. Now they are more widely spread.
A group of countries led by Australia, Japan and New Zealand are attempting to forge agreement on a TPP without the United States, which withdrew from the TPP grouping after Trump became president. The idea is to forge a TPP 11, or TPP minus US, and have the United States join when it is ready to. Many leaders expended significant political capital on the TPP agreement and want to save what they can from the agreement.
For some members of the arrangement, like Vietnam and Malaysia, the biggest selling point of the TPP was greater US market access at the expense of competitors outside the arrangement. The bargain involved acceptance of US rules and standards (that were more suited to advanced economies) in exchange for preferential access over competitors such as China, India or Bangladesh to the lucrative US market for labour-intensive imports such as textiles.
Even for countries facing not so stark a bargain, like Japan or New Zealand, US market access was the economic prize. Entrenching the United States in Asia was the strategic prize. The TPP may still have a role to play as an organ donor where countries and other groupings can take what’s good about the TPP and apply it in other agreements. While it is true that US engagement in Asia was never going to be secured or defined by the TPP but by broader US economic and political interests, those longstanding US interests in Asia are now also being tested by President Trump.
In our lead essay this week, Peter Drysdale argues that ‘in guarding these strategic global interests ASEAN now has a critical role to play, through the ASEAN-led Regional Comprehensive Economic Partnership (RCEP)’. This may seem a strange idea, given perceptions of its weakness and vulnerability but, as Drysdale says, ASEAN ‘is a regional enterprise with a distinctly global outlook and objectives, an experiment in open regionalism that has succeeded’. And ASEAN is still the theatre for strategic action on regional cooperation within Asia and across the Pacific.
RCEP (which includes not only the 10 ASEAN economies but also Japan, South Korea, China, India, Australia and New Zealand) 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, as Drysdale says. 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 provides the platform for an Asian coalition on deeper integration and an open global trade regime. Achieving a credible and ambitious agreement will be a huge challenge but there is enough economic weight and dynamism — given the catch-up growth that is likely to occur in countries like India and Indonesia over the next decades — to make a difference in the face of a rise in global protectionism.
The EAF Editorial Board is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Amy King, Liam Gammon, Jillian Mowbray-Tsutsumi and Ben Hillman, and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.