How Trump’s Asia trade strategy can be a win-win for the US and China
Tara Joseph says the recent US-China trade deal and Trump’s plans to visit the region signal greater engagement, with global benefits
It has been a nail-biting few months for American firms operating in Asia, and it’s been even more tense for companies whose bread and butter is trade with China.
Will the enormous progress of opening markets and pushing for the free flow of goods around the world falter? Could the years of working for an open global economy crumble despite all the hard work and effort?
These are huge questions which have become front and centre of discussions after decades of a major trend towards globalisation. Yet, even if global trade deals unravelled, businesses would struggle to quickly transform their strategies, especially after investing both time and money in markets around the globe, especially here in Asia.
Asia is the fastest-developing market for both goods and services. There is a rising middle class, fresh potential for large infrastructure projects stretching from Sri Lanka to Philippines, and a developing pipeline of opportunities for finance, law and technology firms.
Watch: Trump orders US withdrawal from TPP
Asia today accounts for about 60 per cent of the global economy, and American companies are heavily engaged across the region. There are over 1,400 US companies operating in Hong Kong alone.
Overall, 15,000 US companies are open for business across the region, and the value of investment in the region totalled US$620 billion in 2016.
Yet, ever since Donald Trump became US president and withdrew from the Trans-Pacific Partnership (TPP) trade agreement, US companies operating overseas have been nervously watching and waiting for the potentially earth-shattering impact of that move.
The worries remain as to what kind of trade framework will replace the TPP, but there have been a few welcome developments in the past month to ease some pain until a fresh plan is drafted.
First, the United States and China last week reached agreement on a trade deal rather than starting a trade war, following up on an agreement between Trump and President Xi Jinping (習近平) to address a US$350 billion trade imbalance.
The plan to further open up trade and investment in agricultural products, energy and finance may only be a starting point for providing US businesses greater access to China’s vast market, but it provides a major signal of an intention on both sides to engage.
It was also encouraging to learn that Trump plans to attend three top Asia-Pacific meetings in November – the Asean and East Asia summits in the Philippines, as well as the Apec (Asia-Pacific Economic Cooperation) summit in Vietnam.
The key word in all of this is engagement. At a spring meeting of American Chambers of Commerce from across Asia, there was a clear consensus that the US should remain actively engaged even while new plans are in the pipeline. Engagement means developing strategies for growth, not strategies for isolation. And, importantly, a strategy for trade engagement in Asia is not at odds with Trump’s “America First” initiative; on the contrary, it helps it.
Profitable American companies, wherever they do business, help create healthy profits back home. By tearing down barriers, and raising standards in other markets, we will see more American-made goods, agricultural products and services sold around the world.
Whatever trade strategy may replace the TPP, those of us in Hong Kong understand that the US cannot afford to rest on its laurels. Competition has become more intense – European, Japanese and Chinese firms are all now competing for an increasingly large slice of trade and profits.
Take fast-developing Southeast Asia, for example. China already accounts for 30 per cent of all foreign direct investment into Thailand, according to Credit Suisse. Meanwhile, Japanese direct investment into this region is rising sharply, with annual flows into major Association of Southeast Asian Nations member countries averaging US$20 billion.
Both China and Japan are pushing heavy resources into other parts of Asia: China with its Belt and Road Initiative, and Japan with its Partnership for Quality Infrastructure – a US$200 billion, five-year effort that prioritises East-West connections.
And while the US remained the largest investor in the Philippines in 2016, China is on track to capture that title this year, with investments worth US$24 billion, according to estimates by HSBC Holdings. Those with experience in Asia see that the success of US companies here has been built from a strong base of multilateral agreements, namely the General Agreement on Tariffs and Trade agreements and subsequent World Trade Organisation rules.
But abandoning multilateral trade deals solely in favour of bilateral discussions could have negative consequences.
A slew of bilateral deals would take a long time to negotiate, adding layers of complexity to the business environment, particularly for small to medium-sized companies that do not have the expertise and money for compliance.
Concern about bilateral agreements, though, should not derail the recent trade progress between the US and China. Hopefully, momentum will build following last week’s breakthrough agreements.
The next step will be to forge ahead with a one-year plan to tick off items of concern for both sides.
The importance of trade between the US and Asia cannot be underestimated. A free flow of trade will help smaller, underdeveloped economies grow and lift people out of poverty.
Greater engagement between the US and China will bring a slew of fresh business opportunities to Hong Kong, the first and ultimate gateway city between East and West.
Tara Joseph is president of the American Chamber of Commerce in Hong Kong