Trump’s protectionism threatens to unravel decades of trade liberalisation
China in particular will bear the brunt of the new administration’s ‘America first’ anti-globalisation policies
In the 10 weeks from now to the inauguration of the new Trump era on January 20 next year, the world will be awash with analysis and speculation about how the US and the world are about to be changed. Views range from the euphoric to the apocalyptic – but all are agreed that massive change is afoot.
Outside the US, this is likely to be felt most powerfully in all areas of trade.
Look at the awful electoral rhetoric: “Our plan is to put America first. Americanism, not globalism, will be our credo.” Trump is understood to be the first avowed protectionist to be voted president in almost 70 years. His appeal to nativism, isolationism and protectionism is unprecedented, and threatens the US’s six-decade role as champion of a liberal international order.
So if, like me, you have for the past four decades celebrated the significant net gains that have come from trade liberalisation and globalisation, then almost all the expected changes are going to be bad – and they might begin to rain down on us very soon.
If you are among those who voted for Trump to “Make America Great Again”, then the celebrations have already begun. All I dare say now is “beware what you wish for”.
While many Trump supporters have argued that he will in office be much more moderate than his rhetoric has suggested – like on engagement in Nato, or action on immigration – there are no such voices on trade. The consensus is that a number of high-profile trade actions (where the president has greater autonomy to act) can be expected in short order, with China in particular singled for action. Again, recall the rhetoric: Trump claimed that China’s entry into the World Trade Organisation was “a disaster”, triggering the closure of 70,000 factories and amounting to “the greatest job theft in the history of the world”.
Most notably, Trump has warned he will slap tariffs of up to 45 per cent on China’s exports to the US. Of course, the weasel phrase “up to” is important – such punitive measures are likely to be confined to a rather small number of politically sensitive products. But the impact of such a move could be colossal, both on China and on US consumers, and of course on Hong Kong as a primary conduit for the movement of such exports.
China’s exports to the US last year were just over US$400bn, so even if tariffs were averaged out at just 15 per cent, that would mean additional costs to consumers of around US$60bn. I know Trump’s aim is not to add to consumer costs but to squeeze US and foreign companies that currently manufacture outside the US to “domesticate” their manufacturing processes. But just how naïve is he to think that such “domestication” will not result in higher costs on retail shelves? And how naïve is he to believe such actions would not trigger similarly punitive retaliations?
Trump’s anti-trade stance puts a large number of current trade liberalising initiatives in jeopardy. As Obama is likely to confirm at the APEC leaders’ meetings in Peru next weekend, the agreed Trans-Pacific Partnership (TPP) will now not be ratified, creating embarrassment and disappointment among 11 key Asia-Pacific trading partners.
The US-EU Transatlantic Trade and Investment Partnership (TTIP) is now still-born. The 23-economy Trade in Services Agreement (TiSA), so close to completion, will probably now gather dust (look for news of the cancellation of the December 4-5 Trade Ministerial to finalise the deal).
One hardly dares imagine what harm and conflict would arise if he delivered on threats to renegotiate Nafta (which came into force 23 years ago), or to withdraw from the WTO.
One other certainty is that the US is poised to renege on commitments given to China when it acceded to the WTO in 2001 that it would be allowed to “graduate” to “market economy” status on the 15th anniversary of accession. That happens to be December 15. US trade officials have already signalled that they will not recognise China as a market economy – no doubt in part so they can keep in place 266 per cent anti-dumping charges on some Chinese steel products.
In the EU, where trade officials have similarly been under pressure from steel lobbyists to withhold market economy status, officials last week created an ingenious fudge: the distinction will no longer be made between “market economies” and “surrogate economies” (against which anti-dumping actions can more easily be used to protect local manufacturing lobbies). Instead, the EU proposes to introduce a “significant distortions” clause to assess whether products are being exported at “unfairly” low prices.
Unsurprisingly, China feels betrayed that commitments made in 2001 have now been reneged on. As former WTO chief economist Patrick Low said in the South China Morning Post last May: “The market economy deal for China was just that – a deal. No amount of legal gymnastics can alter that political reality or the sense of injustice that inaction will engender. It will be seen as a promise broken.”
That China has up to now been moderately soft-voiced on likely US protectionism targeting mainland companies reflects the possibility that Trump’s current plans may amount to a colossal US bullet in the foot.
Apart from the protectionist measures themselves, the inward focus of the incoming Trump administration is likely to enable a significant expansion of China’s sphere of economic influence in Asia.
A retreat by the US from its historic role as global trade rule setter, and champion for free trade will not just threaten the liberalising progress made in recent decades. It will prompt many Asian economies to turn more to China as the primary partner for trade and investment.
Note the recent Beijing hospitality offered to Malaysia’s Prime Minister Najib Razak and to President Rodrigo Duterte from the Philippines – both traditionally strong US allies – as hints of an emerging new trend. Note also the launch of the Asian Infrastructure Investment Bank (AIIB), and the One Belt One Road as initiatives to strengthen ties with economies across the Asia Pacific region.
As APEC leaders gather in Peru in the coming week, with President Obama flying in for his “swansong”, the Trump victory will cast a long and ominous shadow. Trump’s bark may prove worse than his bite, but leaders in Peru would be rash to understate the challenge looming ahead. The commitment to liberal trade and investment that has unified APEC’s 21 member economies for the past 27 years is under unprecedented threat.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view