Almost exactly three years later, the situation is slowing improving. Firms have begun hiring more individuals in government regulations or corporate affairs roles in Asia. These individuals or teams have done a better job working directly with officials in the region. But as trade policy heats up, and especially as the threats to the global and regional system escalate on a near-daily basis, most firms are frankly not ready to respond effectively. For firms to do a better job managing their businesses in Asia, government relations (GR) people need to do at least six things. First, recognize that the region is changing rapidly. Many companies have gotten complacent. Firms in Singapore or Southeast Asia, for instance, do not appear to recognize or take seriously the risks coming from a potential trade war between the United States and China.
Singapore’s prime minister: Nobody wants a trade war
Although most Asia-Pacific countries continue to pursue trade and economic liberalization — for example, through the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership — these initiatives will not compensate for the damage caused by a trade war. Beyond the economic loss, strained ties between the United States and China will make it harder for them to cooperate on other pressing issues such as the denuclearization of the Korean Peninsula, regional security, nonproliferation and climate change. None of these issues can be solved without the full participation of both countries. If any of these disputes escalates and destabilizes relations between the United States and China, the consequences for the world would be disastrous. Competition between the United States and China is to be expected. But whether this competition takes place within a framework of interdependence and generally accepted international rules makes all the difference. Ultimately, what is at stake is war and peace, and the security and stability of the world. The United States, China and the rest of the world have too much at stake.
From 11 to 12 Again? The US Rejoining the TPP
So how easy might it be to get the United States back into the CPTPP? That depends on how the United States chooses to behave. If the US were to come to the current 11 parties and ask to reenter on the same terms it had prior to exit, it would be considerably easier. After all, the current 11 locked down the agreement as it stood at the time of US exit, minus 20 provisions that were suspended. The entire text was otherwise unchanged. All market access commitments between members were untouched. These were painful concessions by the 11 to the United States. Many of the 11 members wanted to make changes in the wake of US withdrawal to better match their domestic audience demands for adjustment. This was largely not done. Instead, as our previous Policy Brief noted, just 20 elements of the legal text were suspended. These provisions were not removed entirely, but merely set aside for later consideration. If the US comes back in the near term, the CPTPP could take effect exactly as originally negotiated with all the existing market access commitments for the US still intact and the rulebook as agreed upon under the CPTPP.
US-China Trade War: Collateral Damage in Asia
What has been missing from the analysis so far is much attention to the harm that will flow through to much of Asia as a result of these thunderbolts on trade. Given the linkages between firms engaged in regional and global supply chains, it is increasingly difficult to even determine what is a “Chinese” product anymore. The original list of US$50 billion included a wide range of products subject to 25% tariff rate hikes. Many of the products on this list are made with parts and components that come from all across Asia (and beyond). For example, the list includes a range of televisions, various other types of heavy equipment, and machinery used in factories of all types. However, just focus on one category of products now on the tariff list—buses for carrying more than 16 passengers. The total number of parts and components on a bus numbers into the tens of thousands, including every element in the motor, frame, chassis, seats, dashboard and so forth. Many of these items may be made in China, but others are likely imported from across Asia.
Dishwashers to Nuclear Reactors: The US Retaliation List for Section 301 is Released
While this tariff discussion is going on inside Washington, of course, at least four additional things should also be taking place. First, the tariff list is only part of the Section 301 case. Also coming in the next 60 days is more detail on what the proposed “parallel” regime to more tightly screen Chinese investment will look like. This system is meant to run at the same time as the broader CIFUS process. So far, officials are unclear about Treasury intends to do to manage this new set of procedures. Second, the US is simultaneously moving ahead with a case against China at the World Trade Organization (WTO). Third, negotiations between the US and China should be ramping up. Since the clock is ticking on the imposition of tariffs, with only 30 days before they are meant to take effect, there is extremely limited time to get to an agreement. Given the sweeping nature of US complaints and the unclear goalposts that China needs to meet to head off sanctions, it is not obvious that 301 retaliation can be stopped. Finally, the Chinese are likely to put out their own list of counter-retaliation measures. They just published a list of 128 items subject to $3 billion in sanctions as part of their own response to US steel and aluminum tariffs. These included new barriers to US exports of wine, fruits and nuts. But these are likely to look like minor issues compared to what China has in store for the Americans in the wake of the $50 billion in tariff hikes under the Section 301 dispute. In short, the publication of the tariff list today heralds the start of a new era in US-China relations and the beginning of a totally different American trade policy. Firms should be braced for some very rough times ahead.