Author/s
28 Nov 2018

AWER-18

This opinion editorial was written for the Asia in The World Economy Roundtable 2018 (AWER 2018). The Roundtable is a high-level forum discussing Asia in the global economy, bringing together academic experts and other policymakers from both Asia and the West. Download the AWER 2018 report.

For trading powers like the European Union (EU), having to delicately navigate between the US and China during President Donald Trump’s trade war is a somewhat novel and unsettling experience. For many countries in East and Southeast Asia, it is only an intensification of a diplomatic battle for regional hegemony over the trading regime that has been going on for more than a decade.

The two trading superpowers have spent years laboriously planting and pulling up thickets of abbreviations in the hope of establishing themselves as the regional leader. The US sought to fashion the Asia-Pacific Economic Cooperation (APEC) into a free trade area of the Asia-Pacific (FTAAP), and more concretely drove forward the Trans-Pacific Partnership (TPP) with narrower country coverage but much deeper treatment of regulations, IP, data and other behind-the-border issues. Meanwhile China went broad and shallow, pushing the Regional Comprehensive Economic Partnership (RCEP) which essentially knitted together the ASEAN bloc and its existing bilateral trade agreements - and which excludes the US.

But tensions over this skirmishing for influence have rapidly escalated in the form of Trump’s extraordinary deployment of bilateral ordnance against China. With the US having abandoned the TPP - which in any case covers only part of the region - and RCEP being nowhere deep enough to substitute for the multilateral system, the theatre of combat has somewhat enlarged. At stake in the game of triangulating between Washington and Beijing is now the defence of the entire global trading order.

The power of the US to bully even substantial economies in Asia was evident early on in Mr Trump’s crusade. South Korea was one of the first countries to give in to the threat of Section 232 steel and aluminium tariffs and agree to change its existing bilateral deal with the US, accepting quantitative US import quotas on steel that looked like a relic of the protectionism of earlier decades.

To its great credit Japan, by contrast managed to hold out against US pressure and continue to support collective processes for longer than most economies - including even the EU. Most obviously Tokyo revived and completed the TPP after the US’s departure, ditching some of the more restrictive provisions on intellectual property but maintaining the relatively substantial treatment of data flows.

More importantly from the point of view of coaxing the US back into the multilateral system, Tokyo also convened the trilateral initiative with the EU and the US to try to direct Trump’s anger at China down multilateral channels. The US is, at least, engaging in the process, while not abandoning its preferred route of bilateral force. It, Japan and the EU brought a World Trade Organisation (WTO) action against Chinese technology transfer earlier this year, despite Washington starving the WTO appellate body of judges.

At the same time, while they have both been pressured into direct bilateral talks with the US, Japan and the EU have also opened up conversations with China to demonstrate even-handedness - in Japan’s case in particular as part of a general rapprochement across a number of policy areas.

For the other economies in the Asia-Pacific, it would seem likely that the best they can do is to to take similar positions and swing behind initiatives already under way. The EU and Canada have led a process of reforming the WTO to placate US concerns about the dispute settlement system and its weak disciplines on subsidies.

Pushing that conversation forward without alienating China to the point that it refuses even to participate in the discussion will be helped by a critical mass of countries joining in.

New Zealand, Australia, South Korea and Singapore were part of the recent ministerial meeting in Ottawa to discuss initial WTO reform proposals. Since China does not want to be the only (self-defined) developing economy involved in the conversations, it would be helpful at some point for other emerging market economies to come on board.

Living in the shadow of two rival hegemons is never going to be easy, and minimising damage to themselves rather than striking out positively to end the US-China trade war is likely to be the most that the majority of Asian economies can realistically achieve. But those constructive initiatives are underway, led by the bigger powers like Japan and the EU, can do with all the support they can get.