Trade
A ‘protectionist’ United States still key to East Asia’s economy
Author: Tamas Meszaros, Keio University
Protectionist trade policies and the lack of an economic agenda for East and Southeast Asia have become central themes in critiques of US policy towards the region and its approach to managing US–China ‘strategic competition’.
According to these accounts, US protectionism undermines its economic draw in East Asia — and the political leverage stemming from it — at a time when it has already been eroded by rising reliance on Chinese trade, investment and regional institutions such as the Regional Comprehensive Economic Partnership (RCEP). Instead, the United States should employ open economic diplomacy, return to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and allow for greater market access for exporters from the region.
From the US perspective, limiting economic openness towards China is necessary to protect its industrial base, lessen its import reliance in critical sectors and mitigate the potential for China to weaponise interdependence. But export restrictions, punitive tariffs and industrial policies aimed at eroding the market share of Asian firms are perceived in East Asia as detrimental to the ‘rules-based international order’ and East Asian prosperity.
Yet current US policies are no worse than those pursued in the past vis-a-vis emerging East Asian economies. Persistent US trade deficits with East Asia also ensure that it remains a highly important economic partner and security guarantor in the region.
The role of free trade agreements (FTAs) in fostering trade and investment flows in East Asia has been the subject of debate for decades. Critics of East Asian regionalism have long argued that ‘looser’ integration pursued by ASEAN and its partners offers meagre economic gains. Recent empirical studies investigating the effects of regional FTAs present a mixed bag — FTAs tend to increase trade for less developed countries but have very marginal effects for middle- and high-income economies.
While the degree of liberalisation under the CPTPP is much more significant, it is not a benevolent offer of ‘free’ market access but a result of a hard bargain driven by the United States. The Indo-Pacific Economic Framework (IPEF) is similarly aimed at promoting regulations which favour the United States.
But US–East Asia trade diplomacy has often focused on protecting narrowly defined US economic interests. Trade frictions with Japan in the 1980s, ‘voluntary restrictions’ put on Taiwanese and South Korean semiconductor industries from the 1990s, the US approach to the regional solution of the Asian financial crisis and China’s contested WTO accession all attest to this.
Yet protectionism has also proven to be futile in the past. One reason for this is the robustness of China-centric regional production networks. US trade policy might weaken these, but it cannot significantly alter the economics supporting them and a US manufacturing renaissance remains highly unlikely. The potential for isolating China in manufacturing production networks is therefore limited.
Another reason has to do with consumption and savings patterns. The United States will remain a key market for the region as long as it consumes more than it produces and saves very little, while East Asian economies do the opposite. The COVID-19 pandemic reinforced this pattern as China reacted with supply-side measures promoting manufacturing, while the US raised consumption with demand-side policies. China ended up with a record trade surplus and the US with a record deficit. The image of a protectionist United States and an open China does not match reality.
Still, the development strategies of many regional states hang on joining regional production networks. These largely operate to satisfy US and European demand using US, Japanese and European foreign direct investment inflows. RCEP and a China-centric regional system could only provide an alternative if it also provides more demand and capital.
But China presents contradictory signals. The long-standing aim to raise domestic consumption should provide market opportunities, but the notion of dual circulation suggests that the onus would be on satisfying it with domestic supply. Participation in the value chains of Chinese technology companies would offer rewards for regional suppliers, yet China also professes technological self-reliance, clouding these prospects. Chinese funding is crucial for regional infrastructure development, yet projects often go awry and capital has recently dried…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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