Where Will World Trade Go Under De-globalization?

14 Feb 17

Where Will World Trade Go Under De-globalization?

By Zhang Monan, China Int'l Economic Exchanges Center

The first blockbuster by President-elect Donald Trump is his announcement of intent to withdraw from the TPP "from day one", setting off a chain reaction across the world. Japan, Australia and Malaysia all indicated that a TPP without the U.S. would be insignificant. Whether the TPP is pronounced dead and where US foreign policy will go in the future are key variables affecting global economic change.

Undoubtedly, the global trade pattern is now undergoing an unprecedented adjustment, featuring conflicts and games. Fundamentally, the free movement of commodities, capital and humans is the basis of global prosperity. Any barrier to the free movement of these elements is a huge challenge to globalization. Therefore, Trump’s presidency is considered to be a source of global risk because he advocated building a wall along the southern U.S. border, tearing up the NAFTA, substantially increasing tariffs and holding high the banner of protectionism in his campaign.

Trump’s opposition to the TPP reflects profound public opinion and the reality in the Western countries. The developed economies and the mature industrial countries hold a collective view that since globalization, the industries that gradually lost competitiveness in the developed economies have kept shifting to the outside world, causing a hollowing out of the domestic industries. All this hurts the interests of the "old economic sectors" based on traditional agriculture and manufacturing with their profits down and unemployment up.

So, in this round of de-globalization and even thoughts of anti-globalization, trade protectionism is getting stronger around the globe. According to Global Trade Alert statistics, since 2010 the number of trade protection measures implemented by the developed countries has surged (including anti-dumping regulations, rules of origin, import quota system, export quota system, import license system, import deposit system, exchange control, minimum price, tougher standards in technology, hygiene, inspection and so on). The US, in particular, put forward 624 trade protection measures in 2015, nine times as many as in 2009. Among them, 90 trade discrimination measures were taken in 2015, the highest number in the world, making the US the most radical country in restricting trade liberalization. It is also very harmful to the global economy.

Since the world financial crisis in 2008, world trade growth has basically declined by half----down from the annual 6.7% to around 3%. What’s more, world trade growth continuously lags behind world GDP growth, indicating that the increased trade strength is weakening. Thus the global economy is getting away from "globalization".

Actually, the high-profile announcement of abandoning the TPP does not mean that the US in the Trump era will return to the WTO to resolve issues within its framework. With the possibility of being the largest regional trade agreement in history, the TPP is significant to the US as it seeks to demonstrate its leadership in the Asia-Pacific region and renew its leading power in the future global trade rules. Therefore, even if he takes an extremely conservative position, Trump will not easily give up US leadership in the Asia-Pacific region and in the world.

Where the TPP will go in the future is still unknown. It may change or negotiations may start all over again. Just as Trump stressed: "I will issue a formal notification the United States is withdrawing from the Trans-Pacific Partnership. Instead, we will negotiate, fair, bilateral trade deals that bring jobs and industry back onto American shore." Evidently, no matter TPP’s fate, global trade protectionism will surely enter a period of fast growth. It cannot be ruled out that in the future, the US would pursue another form of regional trade agreement redefined by Trump or seek bilateral agreements in pursuit of maximum domestic interests.

However, all this will not hinder the Regional Comprehensive Economic Partnership (RCEP) as an important platform to promote the regional cooperation. The RCEP was initiated by ASEAN which invited China, Japan, South Korea, Australia, New Zealand and India to join in(“10+6”). It would set up a trade liberalization agreement of a common market within 16 countries through cutting down tariffs and non-tariff barriers. Once the RCEP is reached, it will cover a population of 3.5 billion (49% of the world population), GDP will total $23 trillion (28% of the world GDP), and the covered region will become the world’s largest free-trade area. The population and the total trade covered by the RCEP are higher than those by the TPP, thoughthe TPP agreement has a higher demand than the RCEP.

In promoting trade globalization and trade liberalization, China has always insisted on taking multilateral trade as the primary goal and the regional trade arrangement as the secondary. China has especially emphasized supporting multilateral trade system, has given higher priority to improving trade and investment liberalization and facilitation, and has revived the vitality of trade and investment. In particular, China's active promotion of the FTAAP as an important way to push forward Asia-Pacific regional trade integration has also gained support by more countries. Joint research by Australia, China, South Korea and New Zealand reports that under the three conditions of free trade in goods — free trade in goods plus in trade facilitation, tariff elimination plus trade facilitation and plus free trade in service — the FTAAP will raise the GDP of the APEC economies by 0.55%, 2.26% and 2.33% respectively. The benefit from the FTAAP will be 2.7 times as high as that from the RCEP for China and 2.5 times as high as that from the RCEP for the US. So, whether for the entire Asia-Pacific region or for each member country, the FTAAP can create greater economic and social welfare.

Ministers and leaders at the just concluded APEC conference in Peru decided that, at the end of 2020, the APEC economies would discuss how "the current path" could help the FTAAP make a contribution. Clearly, under the circumstance that the TPP and the Transatlantic Trade and Investment Partnership (TTIP) may be shelved for the time being, there is opportunity to accelerate the FTAAP, working in line with high-standard trade rules, committing to new international trade rules and basing the FTAAP on the next trade mode.

Please click to view the full article on the website of China-United States Focus.

Comments