Even as Donald Trump is sworn in as the 45th president of the United States later this month, it is still uncertain how much his trade policy will damage and disrupt Asia’s trade. But his protectionism does not bode well for Asia and international trade.
Professor Quah commented [The end of] TPP might not be such a big loss after all. TPP now, like many other trade agreements, are about geopolitical powers, they are about strong nation states.
However, Professor Sally argued that the U.S. disengagement probably means that we will see a different kind of capitalism emerging that would be arbitrary, that would be dirtier.
With the rise of anti-trade populism, the growth in world trade growth has fallen to its lowest rate since theglobal financial crises in 2009.
Increasing protectionism and the anti-globalisation backlash in the West highlighted by last year's Brexit and the U.S. presidential election has forced the global trade order to face its biggest threat in decades.
To encourage U.S. consumers to purchase more products made in the country, President-elect Trump plans to impose tariffs on goods from U.S.'s largest trading partners, such as China and Mexico.
These realities will inevitably affect Asia, which has benefited the most from economic globalisation.
Globalisation matters to Asia
Speaking at a panel discussion on Asia, Trade and Globalisation in the Age of Trump', Danny Quah, Li Ka Shing Professor of Economics at the Lee Kuan Yew School of Public Policy (the LKY School), National University of Singapore, said: The reason why globalisation matters to Asia is that you get to sell to the largest market possible. Immigration matters. Staying open to labour market flows, and being able to attract the best help. That's what allows you to succeed.
Many countries in Asia have seen sustainable benefits from international investment flows, exchanges in expertise and steady economic growth. Some Asian economies, such as China, India, Thailand and Indonesia, have also witnessed the emergence of a larger middle class with higher income in recent decades.
According to World Bank research, the income of the average person in the middle of the income spectrum in China nearly tripled between 1988 and 2008. Middle-income Thais and Indonesians also enjoyed almost a doubling of their incomes, while India's middle class saw income growth of about 50 per cent in the same period.
Countries join free trade agreements for the greater opportunities to move their goods freely in international markets. For instance, agreements such as theTrans-Pacific Partnership(TPP) would liberalise trade and investment among 12 Pacific-rim countries excluding China, and theRegional Comprehensive Economic Partnership(RCEP) would enhancetrade and investment-related activities between the Association of Southeast Asian Nations (ASEAN) and its six partners in Asia Pacific.
A shutdown in globalisation, Professor Quah warned, is a shutdown on these channels and would severely restrict the way Asia does business. At some point, some of us might say, Trump is not that isolationist, protectionist character that we think he is going to be, but he is an isolationist, and he's going to shut off a lot of the global markets that are available to us. It's going to work against Asia.
Possible consequences of Trump's economic plans
What does this mean for the future of trade and globalisation in Asia?
As part of his economic goals for the U.S., Trump announced his plan to impose35 per cent tariffs on imported goods from Mexicoand 45 per cent tariffs on products from China. The tariffs on China could potentially hurt economies such asSouth Korea, Japan and even the European Union(EU).
In addition, his plan proposes renegotiating trade deals or even stepping away from deals like theNorth American Free Trade Agreement(NAFTA), which created one of the world's largest free-trade zones across the U.S., Canada and Mexico.
Alex Capri, Visiting Senior Fellow at NUS Business School, pointed out that if Trump was to go ahead with his mercantilist trade plan and tariffs, it could have devastating effects on trade in Asia and the U.S.
If we were to see half of these things that have been suggested then we would see massive disruption, not just of American companies but foreign subsidiaries based in the U.S., Chinese companies and multinationals frankly all over the world that have rationalised supply chain.
Even though the anti-globalisation backlash has been restricted to Western Europe and the U.S. so far, Razeen Sally, Associate Professor at the LKY School, said that there is no certainty that it would spill over to Asia.
China, Indonesia, India, [and] even the U.S. and the EU, have all beenplaying this game of a sort of creeping regulatory protectionism, said Professor Sally. The world has been seeing a stalling of liberalisation, and a creeping of protectionism through a lot of non-tariff regulatory barriers that are difficult to control and for which international disciplines are rather weak, he added.
China's potential role in shaping trade agreements
Experts are now wondering whether as a result of the creeping protectionism, the international community should anticipate the end of an era of American leadership as Asia's balancing power.
If a collective surge in protectionism occurs, is it plausible that China will step in and start shaping agreements that govern trade and commerce in Asia?
Professor Quah suggested that instead of focusing on the downside of a U.S.-centred unipolar world order, Asia should focus on what actually works for and matters to Asian countries or the rest of the world. If we're going to see a silver lining in the Trump isolationism, it is that it's giving the world space to explore alternatives on its own terms, he said.
One possibility to consider is the breakdown of the TPP trade deal that Trump has promised to abandon as soon as he takes office. The TPP notably excludes China.
On one end of the spectrum, Professor Quah commented that the TPP is a vehicle to achieve other objectives, rather than just trade. [The end of] TPP might not be such a big loss after all. TPP now, like many other trade agreements, forces us to realise trade agreements that are no longerabout trade. They are about geopolitical powers, they are about strong nation states, [andabout] hegemonic states projecting core values, like human rights, protectionism and a whole range of other issues.
However, Professor Sally argued that the U.S.'s global leadership alongside agreements such as the TPP is needed in Asia. The alternative most likely means more instability. U.S. disengagement probably means that we will see a different kind of capitalism emerging that would be arbitrary, that would be dirtier. It would have more of the external manifestations of the internal Chinese order, which in many ways continues to be very nasty indeed.
Trump's four-year presidency will start very soon. In the short term, it remains uncertain top what extent Trump's trade policy and protectionism will damage and disrupt Asia's trade. However, according to experts, one thing is already clear: Protectionism does not bode well for Asia and international trade.
This article is an event coverage piece for the panel discussion, "Asia, Trade, Globalisation in the age of Trump", which took place at the Lee Kuan Yew School of Public Policy on 8th December 2016.