While Asia has been an exporting powerhouse for decades, it has not been particularly focused on buying and selling goods and services to neighbors. This is changing. One thing that is missing, however, is a structure to manage an evolving economic landscape for Asia. The existing institutional arrangements do not suit a future order very well. There are only two organizations that might play a role: the Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC). The former consists of 10 countries in Southeast Asia while the latter includes 21 members, many of whom are not in Asia. However, 16 countries have spent years working on a trade arrangement for Asia: the Regional Comprehensive Economic Partnership (RCEP). The 16 member governments (Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam) are struggling to complete negotiations on the FTA for November. The stakes for RCEP are greater than most participants imagine. If the world is, indeed, watching a new “Berlin Wall” moment, RCEP is likely to become a critically important part of the new world order. It is the only readily available platform for managing trade and economic issues in Asia.
The latest Trump tariff threat, of course, is designed to facilitate conclusion of the trade negotiations. Talks are scheduled for Washington DC on Thursday. It is certainly possible that the impeding escalation of tariffs will concentrate minds once more, leading to a very speedy conclusion of talks. Or not. Either way, the coming few days promise more drama on the US-China front than trade watchers have seen in months-- a major escalation of the trade war will happen on Friday or a truce. A second notable set of events takes place early next week that will also help shape global trade for the future. Dueling meetings are scheduled for Geneva and New Delhi for May 13-15. The former is the setting for the first round of talks of what is called the “plurilateral” on e-commerce in the World Trade Organization (WTO). Not all WTO member countries have agreed to join negotiations on the topic, so only a subset of members (74 so far) will sit down to start.
Companies have forgotten how much the global trade regime matters to daily firm operations. If it did, in fact, collapse, the result would be a disaster. The global trade rules are like air. They have existed for so long that companies and consumers take them for granted. They don’t even notice them any longer. But, like air, if it suddenly went away, firms and consumers would discover to their great dismay that they actually like and need air (or the global trade system) very, very much. Why do firms need the WTO? Start with the obvious issues. Right now, 164 countries are constrained in what they can do with tariffs rates. Up until this past year, WTO members did not just randomly hike tariffs overnight. Keeping tariffs consistent has allowed firms and customers to have stability and reduce risk.
1. US-China: The biggest story is likely to remain the ongoing battle between the United States and China. The most immediate deadline is March 1, when the US has promised to impose 25% tariffs on $200 billion in Chinese imports that are currently subjected to 10% tariffs, if the two sides cannot successfully negotiate their way out of the complaints lodged in the Section 301 case. Chinese officials are meant to travel to the US later in January to continue discussions, followed by more talks in mid-February. Given the rapidly closing timeline, however, getting a satisfactory conclusion to the long list of US objectives is unlikely. Three scenarios are possible: 1) US President Donald Trump accepts an outcome that does not really address the systemic complaints at the heart of the Section 301, but goes for a package that includes more Chinese purchases of US agricultural and energy goods plus some limited commitments on Chinese reforms; 2) the timeline is extended, as talks are making headway with a resolution closer to filling most of the Section 301 demands possible by mid-year; or 3) talks collapse and tariffs are imposed on the $200 billion in goods, ramping up to include all Chinese imports to the US before the end of the year.
But slow stagnation does not automatically mean crisis. The current state of calamity in trade comes from the new approaches taken by the largest players in the system. This is not a post to discuss the diagnosis of the problem. It is, instead, to discuss the difficulties in treating the patient. What has been especially striking over the past few weeks has been the inability of many trade policy experts to conceptualize treatment options that go beyond simple remedies. If, indeed, the patient is on life-support or headed for the ICU, it may be necessary to think of unusual options. Yet different forums that ought to be perfectly positioned to do so seem to be caught. Perhaps they do not want to acknowledge the severity of the illness, do not want to admit that the diagnosis goes beyond conventional treatments, do not want to handle the intervention of others in handling the patient treatment, or do not want to think about more depressing trade news.