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Analysis

Strengthening Europe-Asia alliances

Trade remains resilient despite political uncertainty

by National University of Singapore authors

Mon 15 May 2017

For Europe, short-term uncertainties remain prevalent in the light of forthcoming elections in the UK and Germany. But if the European Union and Asia take advantage of opportunities to co-operate more closely on trade, the long-term picture for both regions will remain bright.

High youth unemployment and frustration with immigration are among the key issues fanning populist rhetoric by political challengers in Europe. The debate between globalisation and national populism may negatively impact its trade outlook, including with Asia.

As Britain negotiates its exit from the EU, it is possible the bloc will look inward in the near term to manage any ensuing restrained capacity and strengthen bonds between member states. Additionally, the UK cannot  formally negotiate any trade deals until its exit from the EU is finalised.

Although centrist leaders Mark Rutte and Emmanuel Macron  succeeded in the March Dutch general and French presidential elections respectively, it is too early to celebrate the end of political populism in Europe. Macron’s victory was blemished by a high level of abstention by disillusioned voters, and his nascent party must still contend in impending parliamentary elections. Marine Le Pen, Macron’s opponent in the presidential race and leader of the far-right National Front, secured more than 10m votes in the poll, a record for her party.

Observers should not underestimate the extent to which populist views resonate with some voters. In the Netherlands, Rutte had to adopt some positions espoused by his right-wing rival, Geert Wilders. Meaningful social and economic reforms are needed at the EU level and within member states to prevent the union from experiencing further instability.

However, so long as moderates continue to outperform populist parties, the global economic outlook will remain positive. Competition between the UK and the EU for Asian trade could benefit the region. As soon as Brexit concludes, the UK will proactively seek deeper engagement with partners outside Europe. It might consider expanding into new markets through ambitious deals in services and agriculture, among other sectors.

The EU could strengthen its links with Asia and may become more open to the idea of establishing free trade agreements with states like Japan. Countries such as China, South Korea and India are already significant trading partners. Multinational companies have embedded their global value chains across Asia to take advantage of lower production costs. There is an especially large and well-established multinational presence in Southeast Asia.

The EU has been working to boost its trade and strategic ties with the Association of Southeast Asian Nations. In 2015, it established an EU mission to Asean in Jakarta to underline Europe’s commitment to the region. Furthermore, despite the popularity of anti-globalisation rhetoric in a number of advanced economies, this may not result in a slowdown in investment flows or trade growth.

During a visit to Singapore in March, former French President François Hollande encouraged European countries to resist trade protectionism by staying united and engaging with Asia. Businesses, ultimately, will continue to seek strong returns on investment in emerging markets, and trade between the EU and Asia will remain resilient.

This is an edited version of an article that first appeared on Global-is-Asian, the digital platform of the Lee Kuan Yew School of Public Policy, and reproduced here with the permission of the National University of Singapore.

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