Peer reviewed analysis from world leading experts

Asia and Trump's trade war threat

Reading Time: 5 mins
Chairman, CEO and president of Nucor John Ferriola and US Steel CEO Dave Burritt flank US President Donald Trump as he announces that the United States will impose tariffs of 25 per cent on steel imports and 10 per cent on imported aluminum during a meeting at the White House in Washington, United States on 1 March 2018. (Photo: Reuters/Kevin Lamarque).

In Brief

The world's two largest economies are skirmishing around the brink of a global trade war. This dangerous development puts at risk the international trading system that underpins prosperity in the global economy.

Share

  • A
  • A
  • A

Share

  • A
  • A
  • A

The US administration’s ‘America first’ agenda has brought uncertainty to the global economy. The risks have intensified in President Donald Trump’s second year in office with tariffs slapped on steel and aluminium imports from around the world and the threat of large-scale protection aimed at China with the deadline set next week. The European Union, China and others have threatened to retaliate if the US measures are implemented.

A managed trade deal between China and the United States still looks a likely outcome. Although it might be better than a full-blown trade war, it will involve measures outside of the rules-based trading order, such as so-called voluntary export restraints. That would have significant negative spillovers to other countries, diverting trade and investment in ways that diminish global welfare, and exacerbate political tensions. Nor would it help Trump achieve his stated aim of reducing the United States’ trade deficit.

More than any other region, Asia relies on open markets and confidence in the multilateral system for economic and political security.

Adjusting to China’s rise was always going to be difficult to manage for the United States, its allies and the established order. But President Trump has raised the stakes and multiplied the risks.

If Trump is intent on tearing up the existing global economic order, how might the rest of the world respond, preserve what works and fix what doesn’t work without major disruption?

This week we launch the 37th issue of East Asia Forum Quarterly on ‘Asia and trade war‘. The essays in this volume bring together analysis from the region’s top thinkers on the evolution of, and changes in, the US–China relationship, the threat to the global order and what options there are moving forward. The shift away from US leadership in trade, what needs to be done to rebuild the support for openness in America, Japan’s difficult position, the Brexit ordeal, and Asia’s response are all featured. The regular Asian Review section includes essays on Malaysia’s democracy and modernisation, Chinese governance and a deep dive into the US–China economic relationship.

In our lead essay this week Roberto Azevêdo, Director General of the World Trade Organization (WTO), pleads that the multilateral trading system, as embodied in the WTO, has been very effectively doing the job that it was created to do almost 70 years ago. ‘It has secured a foundation on which countries can base their economic planning with confidence — so much so that countries sometimes appear to take the stability and predictability of the trading system for granted in their economic planning’, he says. But he also worries out loud: ‘It’s important to remember what we could stand to lose if the current tensions lead to an unmanageable escalation of tit-for-tat trade policy actions’.

‘Imagine … if we were suddenly presented with a scenario where the system started to falter. If tariff levels were no longer bound at the historically low levels we see today, if we could not rely on members honouring their services commitments, or if the system of settling trade disputes was to erode, the consequences would be dramatic. If, for example, tariffs returned to the levels before the multilateral trading system was created we would see trade flows fall by 60 per cent, while the global economy would contract by 2.4 per cent. That’s even bigger than the contraction after the 2008 crisis — the biggest crisis we’ve seen in the past 80 years’.

This threat is real, and all the countries which have a such a big stake in it cannot stand by while the foundations of the global trade regime are torn apart by the maverick regime in Washington.

What can be done?

In our second lead this week, Mari Pangestu and Christopher Findlay make clear that waiting for others to take or resume the lead is not an option. In the absence of leadership from the advanced economies, Asia needs to share the burden of trade leadership. The key will be how increasingly influential ‘second-tier’ economies respond to this existential crisis. No actors are more important than Indonesia, Southeast Asia and their East Asian partners, operating through ASEAN and the ASEAN-plus regional agreements that are already in place and can be consolidated under the Regional Comprehensive Economic Partnership.

Asian economies depend on the open rules-based system not only for their economic prosperity but also for their political security. Asian countries need to stand firm in the face of the threat to the global trade regime. The dynamic of Asian growth depends importantly on remaining committed to the trade reform agenda, and encouraging entrenchment and deepening — including by China, the Southeast Asian economies and India — of the open rules-based international trading system.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

Comments are closed.

Support Quality Analysis

Donate
The East Asia Forum office is based in Australia and EAF acknowledges the First Peoples of this land — in Canberra the Ngunnawal and Ngambri people — and recognises their continuous connection to culture, community and Country.

Article printed from East Asia Forum (https://www.eastasiaforum.org)

Copyright ©2024 East Asia Forum. All rights reserved.