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Analysis

Real dangers for international trade

More forward momentum required in Asia Pacific

by David Skilling in Singapore

Fri 17 Nov 2017

For 30 years, US President Donald Trump has held conspicuous views on international trade. In 1987 he took out a full-page ad in The New York Times arguing that 'for decades, Japan and other nations have been taking advantage of the US' by running a weak yen policy that caused 'vast deficits'.

Under Trump's leadership, the US has withdrawn from the Trans-Pacific Partnership and is renegotiating the North American Free Trade Agreement (in a way that some believe suggests he isn't serious about reaching a deal). He has threatened to renegotiate the US-Korea Free Trade Agreement (Korus), and complained bitterly about trade partners' allegedly unfair treatment of the US.

However, despite early fears, Trump's rhetoric is yet to lead to trade and currency wars. Since the fourth quarter of 2016, world trade growth has strengthened in line with the coordinated global economic recovery. But Trump's tour of Asia, between 5-14 November, the longest such trip by a US president in more than 25 years, raised questions about whether this can be expected to continue.

The tour included bilateral meetings in Japan, South Korea and China, and then the Asia-Pacific Economic Co-operation meetings in Vietnam. On trade policy, nothing consequential occurred. In a visit which was well-choreographed by Japan, Prime Minister Shinzo Abe was able to sidestep US requests for bilateral trade talks. In South Korea, the Korus renegotiation was not mentioned publicly.

The Trump administration's preferred approach of bilateral deal-making is not making progress. Lee Hsien Loong, prime minister of Singapore, noted the flaw in the US approach during his visit to Washington in October. Speaking on the US belief that it can use its negotiating power to extract a better deal, he said, 'I think not that many partners will be keen to deal with you bilaterally.' US Commerce Secretary Wilbur Ross reminded partners in the UK of this earlier in November when he spoke of the need for Britain to align its trade and regulatory approaches with the US.

Beijing rolled out the red carpet for Trump's 'state visit-plus', and succeeded in postponing any meaningful discussion about bilateral trade. A purported $250bn of commercial deals were announced, but there was less on policy. Trump promised 'practical steps' to reduce the trade deficit, but there is little on the agenda. This may be sustainable as long as the North Korean issue requires co-operation, but probably not for much longer.

In spite of the president's generally positive remarks about China, strategic competition between the two countries is likely to increase. There are fundamental tensions between Beijing's deeply mercantilist 'Made in China 2025' plan and Western interests. Both China and the US seem increasingly unwilling to be constrained by the World Trade Organisation. This relationship will become much more difficult to manage.

At least for the moment, the consequential trade policy discussions in the Asia Pacific are happening without the US. The key platform was the meeting of TPP ministers at the Apec summit in Vietnam. The 11 countries involved agreed the central elements of a new iteration of the TPP, which will be called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

There is room, therefore, for some confidence. But there are real dangers. A worsening in the relationship between China and the US could quickly lead to problems for trade and the global economy. The spectre of military conflict – in North Korea and, increasingly, the Middle East – is another risk.

To date the global trading system has survived the abdication of the US. But more forward momentum is required.

David Skilling is Director of the Landfall Strategy Group, a Singapore-based economic advisory firm.

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