01 Aug 2018

Fears over rising populist and anti-globalisation sentiments have clouded this year’s European elections, which could test the European Union’s (EU) stability and impact trade between Europe and Asia.

In the age of Brexit and Trump, the world has been paying close attention to the European elections and waiting to see if the rising tide of populism will sweep over the continent.

This year, elections in three major European countries the Netherlands, France and Germany opened up the possibility of a right-leaning Europe due to a few formidable candidates with strong populist views. British Prime Minister, Theresa May, has also called for a snap general election on 8 June.

European elections and populist sentiments

Some worry that if populist leaders are elected, they would push for the dissolution of the EU. In turn, this could destabilise the Union and affect trade with partners, including those in Asia.

During a talk on Will Populism Trump in the Upcoming Elections in Europe?' organised by the EU Centre in Singapore in March, Jonas Condomines, former head of the Asia, Australia and New Zealand unit of the European Parliament, observed that this series of elections could make 2017 a year of introspection for Europe.

The debates leading to the elections saw far-right politicians engage in the politics of fear, fanned by conditions such as high youth unemployment, frustrations with immigrants and a general uncertainty over the future, he said.

Echoing this view, Associate Professor Razeen Sally, Lee Kuan Yew School of Public Policy at the National University of Singapore, said that the global slowdown has exacerbated these factors, exposing how alienated Europeans feel from their governments and the elites.

Short-term dampener

Europe's battle between globalisation and national populism could dampen its trade outlook with Asia in the short term.

As the U.K. negotiates its exit from the 28-nation bloc, it is possible that the EU could look inward for the next few years to manage its ensuing restrained capacity.

Additionally, the U.K. cannot negotiate any trade deals until Brexit is completed, which could effectively stall its trade engagement with other countries for a few years.

Although the Dutch elections saw a centrist figure winning, and polls in France predict a victory for fellow centrist Emmanuel Macron come this Sunday (7 May), it is too early to celebrate the halt of the populist tide.

The risk is certainly there. If Marine Le Pen wins, then all bets are off, there is a danger that the EU might break up more quickly than the doomsayers predicted, and France and other parts of Europe could turn inward, said Sally, referring to the far-right populist candidate who has emerged as the closest rival to Macron.

Long-term optimism

However, if present factors hold, the global outlook over a longer period seems more positive, and could spur favourable outcomes for trade and investment across Asia.

Firstly, competition between the U.K. and the EU for Asian trade in the coming years could benefit this region, said Sally. As soon as Brexit concludes, the U.K. will proactively seek deeper engagement with markets outside Europe, which could pay off for Asian countries.

We can expect the U.K. to be more active in this part of the world, said Sally. The U.K. is looking toward its freedom to be even more open, he said, adding that it might consider expanding into other markets through ambitious deals in the service industries and in agriculture, among others.

Secondly, trade links between Asian countries and the EU could be further strengthened. The EU may become more open to the idea of trade deals with Asian partners such as Japan, as the Trump administration increasingly signals its intention to look inward.

According to a paper by the European Parliament's Directorate-General for External Policies titled Trade and Economic Relations with Asia, trade between Asia and the EU is significant. Asian countries such as China, Japan, South Korea and India are key trading partners for the EU.

Other things being equal, trade will continue and companies will carry on, said Sally. He pointed out that multinational companies (MNCs) have embedded their global value chains across Asian countries to take advantage of lower production costs in the region.

Southeast Asian countries are at the heart of Factory Asia', where you have big MNC presence. These networks have been there a long time and will not change drastically, he added.

The EU has also been working to boost its trade and strategic ties with Asia and the Association of Southeast Asian Nations (ASEAN), even establishing an EU Mission to ASEAN two years ago to underline this commitment.

Impact overstated, unintended consequences?

If recent developments are anything to go by, speculations that EU's stability will be shaken by the series of elections this year may not pan out, as centrist figures have been trumping right-wingers so far.

In addition, despite the anti-globalisation rhetoric, some argue there may not be a slowdown in investment flows or trade growth, as companies will go where the profits are. Asian trade with the EU, too, has remained resilient.

Still, Sally urged caution against underplaying the extent to which populist views resonated with Europeans. He opined that serious social and economic reforms are urgently needed at the EU level and within member states to prevent the Union from experiencing further instability.

In the meantime, there has been some unintended but positive consequences. Brexit has brought the European states closer together as they stand up against the U.K. in exit negotiations. During his visit to Singapore in late March, French president Francois Hollande also encouraged European countries to fight against trade protectionism by staying united and engaging with Asia.

Indeed, while the short-term impact could be dampening due to uncertainties, the longer-term picture looks brighter for this region.

With Brexit and a more isolationist and protectionist U.S., the EU and Asia have a strong opportunity to work even more closely on trade.