trade war

US Trade Policy in 2021

US Trade Policy in 2021

So, on trade, Trump and whatever might now be called the “Trump wing” of the party will be opposed to trade agreements (except for “really good ones” that are different from the current crop of deals). He made three big promises: to hike tariffs on China and Mexico; to “rip” up NAFTA, and to withdraw the US from the Trans-Pacific Partnership (TPP, now renamed the CPTPP after US withdrawal on Trump’s first Monday in office). Note that—in an otherwise wildly inconsistent presidency—Trump has delivered nearly all of what he set out to do in trade. Trade is the one area where Trump has strongly held beliefs that have not wavered across decades. He has found officials that share his vision of a world where the US continues to dictate outcomes and allowed them to press ahead. As he faces a very tough re-election fight in 2020, Trump is likely to continue to escalate one area that matters to him—reversing the economic “war” that the US had been losing by pursuing aggressive policy actions. The President already had extraordinary leeway to maneuver on trade, as we noted in 2016. The past years have shown that the presumed “guard rails,” like Congress, have been less effective in limiting actions than many anticipated. His use of Executive Orders and options pulled out of the US policy “toolkit” of largely forgotten provisions, often dating back to height of the Cold War with the Soviet Union, has continued to rise. Trade, President Trump believes, is a big part of what got him into the White House. Hence, expect it to remain dominant in the few months leading to the election. His advisors will also be more eager than ever to lock in policy actions consistent with Trump’s views on trade.

Five Obstacles to Creating Asia’s New World Order

Five Obstacles to Creating Asia’s New World Order

RCEP was certainly not launched in late 2012 with the intention of managing trade in a system of collapsing global rules.  It is struggling to get across the finish line in November after years of fraught negotiations.  Getting RCEP done is imperative.  Asia needs RCEP more than it ever could have imagined at the outset. There are at least five key challenges ahead in meeting the rapidly approaching November deadline for closure:

1: Japan and South Korea are currently embroiled in a rapidly escalating trade and security dispute.  The original problem stems from long-simmering historical grievances that have typically been tempered by the intervention of the United States.  However, the breakdown of the global order means that there is currently no handbrake stopping these two neighbors from continuing to intensify their disagreements.  It has already spilled over from trade to the security realm. 

RCEP: Filling a Critical Gap in Asia’s Economic Architecture

RCEP: Filling a Critical Gap in Asia’s Economic Architecture

While Asia has been an exporting powerhouse for decades, it has not been particularly focused on buying and selling goods and services to neighbors.  This is changing. One thing that is missing, however, is a structure to manage an evolving economic landscape for Asia.   The existing institutional arrangements do not suit a future order very well.  There are only two organizations that might play a role:  the Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC).  The former consists of 10 countries in Southeast Asia while the latter includes 21 members, many of whom are not in Asia. However, 16 countries have spent years working on a trade arrangement for Asia:  the Regional Comprehensive Economic Partnership (RCEP).  The 16 member governments (Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam) are struggling to complete negotiations on the FTA for November. The stakes for RCEP are greater than most participants imagine. If the world is, indeed, watching a new “Berlin Wall” moment, RCEP is likely to become a critically important part of the new world order.  It is the only readily available platform for managing trade and economic issues in Asia.

A View From Washington

A View From Washington

First is what might be called the “X Factor”—the multi-dimensional challenge posed by China under Xi Jinping to the U.S.-led international order, especially in the Asia-Pacific. There is an emerging consensus that the U.S. and China have entered a period defined by confrontation and competition that will be won or lost in the grey area short of kinetic action. At its core, this is a contest over divergent values and interests. It’s a contest between opposed political and economic systems, and between different visions for the future of Asia and the world writ large. On the political front, it’s a contest between authoritarian rule and democratic rule. On the economic front, it’s a contest between a state-led model and a market-based model. It’s a contest in which the U.S. must prevail. To compete effectively with China, it’s imperative for the United States to strengthen economic engagement in the Asia-Pacific through increased trade and investment, and not to succumb to protectionist impulses. I would note that every U.S. multinational enterprise worth its salt understands that they cannot be a successful global company unless they have a meaningful presence in Asia or a strategy to attain one. But American firms are working against considerable headwinds emanating out of Washington.

Mexico Solved? Not So Fast…Significant Damage Remains

Mexico Solved? Not So Fast…Significant Damage Remains

The net result, for Trump, is that he did what he wanted and it worked.  Flush with this victory, it is highly likely that Trump will double down on his strategy in the future.  After all, he will reason, his advisors argued against his Mexico gamble and yet it paid out so well for him.  Why, then, should he listen to them if they advise against similar trade and tariff policies again? Trade is now a tool to be used for non-trade objectives, as we have noted previously.  While clearly illegal, such a distinction does not matter.  Trump was willing to impose tariffs on Mexico in direct contravention of existing World Trade Organization prohibitions, NAFTA rules and the upcoming NAFTA 2.0 rules.  He used a dubious interpretation of the American emergency powers act to justify his decision domestically.  The gloves, so to speak, are clearly off.  And, having won a big match in this way, there is every reason to believe such tactics will be tried again.  Future opponents should be forewarned.