By Victor Andres “Dindo” Manhit —
Key events in 2016 affirmed the growing prevalence of populism and anti-trade sentiments a raft of nations. In June 2016, the United Kingdom voted to leave the European Union, fueling momentum for populist movements worldwide. A few months later, Donald Trump was catapulted to the U.S. presidency on an ‘America First’ campaign. Although trade has played an important role in advancing economic growth, it has clearly lost its dynamism in western markets.
Asian economies, however, are singing a different tune. Emerging powers in Asia have continued to liberalize their markets. The Asian Development Bank (ADB) reports that although trade growth in the region has decelerated due to slower global growth, intraregional trade continued to strengthen.
The global trade disorder
Asians are learning from the literature on trade, which is dominated by studies showing how lower trade barriers have helped improve productivity, speed up growth, and given businesses and consumers more choices.
During global recessions, trade understandably stalls for a period of time. However, years after the 2008 financial crisis, growth in world trade has still remained flat, marking the longest period of postwar trade stagnation. The World Trade Organization (WTO) has forecast trade to grow between 1.8 percent and 3.1 percent in 2017, down from its initial forecast of 3.6 percent. Meanwhile, global GDP growth is expected to recover to only 3.4 percent this year from 3.1 percent in 2016.
In an atmosphere of skepticism towards trade liberalization, reaching the pre-crisis average global trade growth of 6 percent is unlikely. The standstill in multilateral trade negotiations had encouraged countries to turn to plurilateral negotiations instead. However, these have not yet led to significant progress in goods and services liberalization. The long-negotiated Trans-Pacific Partnership appears to be another nail in the coffin of western-led trade, at least in the short-term.
The slowdown of global trade in the midst growing protectionist sentiments is particularly alarming, and history shows why. In the aftermath of the Great Depression in the 1930s, the United States raised its import tariffs, only to face retaliation from other countries. This only worsened the recession and slashed more than half of global trade. Today’s western leaders are treading on a dangerous route by introducing restrictive trade measures.
In Asia, the prospect of increasing protectionism in the west poses a huge threat to its trade growth. The number of antidumping cases filed against Asian exporters has risen by over 50 percent in the last five years. Protectionism can harm smaller countries — particularly those with export-oriented economies — that have limited resources to cushion against external shocks.
A rethink in the rules of global trade?
There are growing calls for a more moderate form of globalization, arguing that today’s volatile politics is partly rooted in excessive globalization. Dani Rodrik, a Harvard economist, has argued that democracy, national determination, and economic globalization cannot be pursued simultaneously. Despite the merits of trade, citizens have not equally reaped its benefits.
At the same time, trade-reducing corrective measures are misdirected. It would be a global catastrophe for advanced economies to enforce more stringent import barriers, control capital flows, and manipulate their currencies. Instead of reverting to protectionist policies, larger countries should implement strategies to ensure that trade’s benefit is more inclusive, such as strengthening social safety nets to help those who have lost out.
Shift in trade patterns
The political climates in western countries have made it exceedingly difficult for politicians to push for more trade liberalization. In contrast, Asian economies have a different narrative.
President Xi Jinping, the first Chinese head of state to participate in the World Economic Forum, delivered a speech in defense of globalization. Xi echoed a vision typically espoused by western leaders, saying that, “We should adapt to and guide economic globalization, cushion its negative impacts, and deliver its benefits for all countries.” This is a stark contrast to the anti-trade rhetoric embraced by the new U.S. administration, although to be sure China still has a strictly controlled and highly regulated economy in which the state is a key player.
In his first week in office, Trump withdrew his country’s involvement in the Trans-Pacific Partnership (TPP) and sought to renegotiate the North American Free Trade Agreement (NAFTA). To add salt to the wound, he threatened to impose tariffs on goods produced in Mexico and China. Should Trump pursue border taxes, global supply chains will be disrupted and trade wars will ensue as affected countries will most likely retaliate. These policies would undermine trade reforms implemented over the past decades.
With the United States retreating from the global stage, China looks poised to try to fill the leadership vacuum. The TPP’s demise will allow China to expand its economic clout in Asia through the Regional Comprehensive Economic Partnership (RCEP). Traditional American allies in the region have already hedged towards Beijing. The Philippines, for instance, has reoriented its foreign policy, setting aside its tussle with China in the South China Sea in favor of stronger economic ties.
But for China to become a credible leader in global trade, it should be willing to open its markets further and abide by international trade standards. As it stands, it has not implemented many significant reforms after its accession to the World Trade Organization in 2001. Its regulatory environment is unpredictable, transparency challenges continue unresolved, and barriers to its services markets remain in place.
China itself is also one of the main targets of protectionist policies. Although China has shown geopolitical assertiveness, it faces numerous constraints in assuming global leadership. For now, it seems unlikely that a dependable leader will take the helm in shaping the rules of the global economy. What is clear, however, is that Asia will now serve as the backbone of stability amid the growing clamor for protectionism.