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The Globalization Bulletin Trade liberalization January 2017 NEWS COVERAGE PERIOD FROM JANUARY 23RD TO JANUARY 29TH 2017 ‘IF US TURNS INWARD, CHINA’S CLOUT WILL RISE’ Dawn, January 25th, 2017 Goh Sui Noi BEIJING: A protectionist United States that is less engaged in East Asia could lead to the growth of Chinese influence in the region, said analysts in response to US President Donald Trump’s inaugural speech. Trump, in his speech on Friday, made it clear he would pursue a protectionist and isolationist “America first” policy, including on trade, in a bid to bring jobs back to the US. The White House, in a statement, said the US will withdraw from the Trans-Pacific Partnership (TPP) trade pact, one of the largest in the region that brings together 12 nations. Signalling a renewed focus on counter-terrorism, Trump said the US would “reinforce old alliances and form new ones, and unite the civilised world against radical Islamic terrorism”. And while Trump did not mention China by name, Beijing is likely to expect pressure from the US in the areas of trade and geopolitics. “Trade friction between a Trump-led US and China is highly probable”, given that Trump meant to overturn current US trade and economic policies to revitalise the US economy, said the state-run Global Times in an editorial. It added that China could also face pressure from the US in geopolitics. A US that is protectionist and distracted by security issues in other parts of the world will “create some impression in the minds of local elites in East Asia that the US is not as reliable as it used to be”, said Associate Professor Li Mingjiang from the S. Rajaratnam School of International Studies in Singapore. “You can then see the growth of Chinese influence. Some countries will decide to be engaged with China, and you can see the very gradual transformation of regional security alignments slightly in favour of China,” he added. The US’ withdrawal from the TPP — and its likely trade disputes with China and other countries in the region — means it is unlikely to take the leading role in shaping the economic integration of the region, thus giving China more scope to do so. “In the coming years, China may have the opportunity to further expand its economic influence in the region,” said Prof Li. This could, in turn, boost Beijing’s strategic influence. “In today’s Asia, economics, strategic influence and security relationships are inseparable. If the economic future of regional countries rests more and more with China, it will help increase China’s strategic clout in the region,” he said. He added that this has already been seen in the case of the South China Sea. “In the past years, China was able to prevent a unified Asean because of the importance of China’s economic ties with some Asean member states.” However, Professor Jia Qingguo, dean of the School of International Studies at Peking University, said he does not think there will be a lot of room for China to manoeuvre. The Globalization Bulletin Trade liberalization This is because East Asia is too important economically for the US to ignore. “The US will strengthen its military presence in the region and use bilateral negotiations to win more concessions,” he said. But this unilateral approach could be harmful to the US because countries in the region would not agree with it. Whether China can capitalise on this depends on what it does, but the US remains important to these countries, he added. To counter China’s growing influence, Kobe University professor Tosh Minohara said a “coalition of concerned nations” in the region could hold dialogues, including on security issues. This coalition could include Japan, India, Vietnam, Australia and Singapore. Indeed, the US under Trump would want its security ally Japan to do more operationally, including taking part in freedom of navigation operations that the US has been conducting in the South China Sea, to challenge what it sees as China’s excessive claims there, he added. If the US were to retreat from the region, Japan would then have to play a bigger leadership role. “If Japan does nothing, that by default means that this area is now part of the Chinese sphere of influence,” he said. He added that although the TPP in its present form is dead, Japan should advocate that the other nations negotiate a “TPP 2.0” without the US but including India. “We will see a more unstable and uncertain East Asia and, perhaps, also an unhappy one … It’s going to be a roller- coaster ride and we will have to brace ourselves for the worst.” —The Straits Times / Singapore https://www.dawn.com/news/1310468/if-us-turns-inward-chinas-clout-will-rise DITCHING T.P.P. WON’T SOLVE THE TRADE DEFICIT International New York Times, January. 24, 2017 Jared Bernstein WASHINGTON — President Trump wasted no time tackling his campaign promise to reverse America’s trade deficit: On Monday he signed a memorandum withdrawing from the Trans-Pacific Partnership, a move he promised would be a “great thing for the American worker.” The withdrawal dovetails with promises to impose tariffs on imports and crack down on American companies that manufacture overseas. These steps make for great optics. But in economic terms, they’re unlikely to move the needle. For the country to improve its trade balance, the president’s going to have to do a lot more. Ripping up trade deals won’t achieve much. A new study by the nonpartisan Congressional Budget Office found that estimates of the impact of “trade agreements on the U.S. trade balance are very small and highly uncertain.” Large tariffs are also unlikely to help. Yes, they’ll lower imports, but they’ll probably lower exports as well, both through a stronger dollar and through retaliatory tariffs from our trading partners. And it’s hard to imagine much good emanating from Twitter-shaming China, or writing a check to the occasional factory to prevent it from outsourcing some of its jobs. Such measures are far too ad hoc to make a systemic difference. The Globalization Bulletin Trade liberalization Factors in the trade deficit include how much countries save and invest, the demand for traded goods and services, the relative competitiveness of the companies that produce them and, most important, exchange rates. Even as productive as they are, our manufacturers can’t compete in foreign markets if exchange rates — the value of the dollar in terms of the currencies of our trading partners — are tilted against them. A few years ago, Congress passed legislation that would allow the administration to impose duties on specific imports, like a particular grade of tire, that were subsidized by exchange rate manipulation. Though the bill got large majorities in both houses, congressional leaders and the Obama administration killed the measure. Given today’s climate around trade, such a bill might well sail through Congress with bipartisan and leadership support. That’s a narrow approach to exchange-rate manipulation. A more sweeping way to level the playing field is a plan by the trade expert C. Fred Bergsten for “countervailing currency intervention.” In simple terms, it would allow American economic authorities to purchase the currency of the manipulating country “to neutralize the impact of that country’s own intervention in the foreign exchange markets.” This idea hits a sweet spot: It could be more effective against currency manipulation and wouldn’t interfere with trade flows and market-driven (versus orchestrated) moves in the dollar. Next, countries have long used capital controls (e.g., taxing foreign asset purchases; limits on currency purchases) to block unwanted inflows of money that made their currency rise. There’s a risk here: Such inflows can be a valuable source of investment capital. But they can also increase the value of the dollar, worsen the trade deficit, and inflate credit bubbles. I wouldn’t be at all surprised to see the Trump administration consider this route. Another idea was introduced by Warren Buffett years ago: enforce balanced trade by providing exporters with “import certificates” worth the value of their exports. These could be traded to importing firms here or exporting firms abroad, in a version of cap-and-trade. (However, like Mr. Trump’s ideas for large tariffs, this scheme could generate retaliation — and thus have little impact on the trade deficit — and significant inflation.) As part of corporate tax reform, House Republicans are pushing a plan that subsidizes exports and taxes imports. That certainly sounds as if it’s doing something about the trade deficit, but that may not be the case: In response to complaints by companies that depend on cheap imports, like big retailers, proponents of the tax argue that it will increase the value of the dollar enough to offset the tax (that is, it will lower the price of imports). If they’re right, the trade deficit won’t shrink. Finally, one reason our trade deals have little impact on our trade deficit is that they fail to include enforceable rules on things like currency manipulation and rules of origin. For example, Trump officials are already talking about useful changes to Nafta that would, among other things, ensure that only goods with a true majority of member-country content receive the benefits of the trade deal. Making sure that any new trade agreements correct these omissions is a core part of establishing new rules of the road for international trade. These are all big steps, but they may be worth it, given the global headwinds that are likely to drive up the deficit.

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