Market-opening international trade policy reform tends to yield positive results. When trade flows increase, nations on both ends tend to benefit. At the enterprise level, in a trade transaction both parties usually perceive a benefit; otherwise the transaction would not take place.
And, trade often delivers benefits domestically thanks to increases in productivity from economies of scale and specialization, competition and returns to investment in innovation. The economic gains generally outweigh any trade-related adjustment costs by a large margin.
According to one big historical study, countries that liberalized their trade regimes were able to accelerate annual economic growth on average by about 1.5 percentage points.
This can be seen in action among the Asia-Pacific nations. Global, regional and bilateral accords are delivering increased market openness. This rules-based framework is helping to reduce policy uncertainty and impose discipline against unfair trade practices.
Clearly, there is room for improvement, but overall, this framework works well. The region has seen real GDP growth of 4 percent or more annually since 2010, well ahead of the global average.
Over the same period, export growth in the region has beaten the global average every year except for 2015-2016.
HSBC forecasts these trends will continue this year and next. The Asia-Pacific region is demonstrating the potential of trade to contribute to improved welfare.
However, the US administration is resisting such an open approach to trade. In striving for balanced bilateral trade flows, the US appears willing to limit imports as it promotes exports.
The US has withdrawn from the Trans-Pacific Partnership (TPP). It has proposed reforms to the North America Free Trade Agreement, but announced its intention to withdraw if US requirements are not met. The US is not keen on new regional deals, preferring bilateral negotiations, where it hopes to use its clout to win more concessions from partners. US authorities have launched numerous trade actions under anti-dumping, countervailing duty and safeguard provisions.
Perhaps more unsettling for the multilateral trading system, the US has employed a tough interpretation of certain WTO rules.
In March, the US referenced national security concerns to impose new tariffs on steel and aluminum, going beyond the traditional view of relevant WTO provisions. Despite granting some exclusions and temporary exemptions, this still set a potentially damaging precedent.
In the case of China, the US also used a domestic law (already the subject of challenges at the WTO) to allege unfair trade practices and propose further tariffs on Chinese imports and investment.
Fortunately, partner dialogue with the US on these issues continues. Formal consultations have been requested at the WTO by US partners, including several Asia-Pacific nations. Direct bilateral talks have been launched with China, South Korea and Japan, among others. Indeed, South Korea concluded a revision of its bilateral agreement with the US, providing for some liberalization.
However, this also entailed South Korea’s acceptance of restrictions on exports of steel to the US.
Enforcement concerns have also been raised at the WTO, where the US has questioned the purview of the WTO dispute resolution findings.
While the use of strong trade actions might enable the US to gain negotiating clout, its willingness to exit from existing accords creates uncertainty about present and future deals.
So far, most US trade partners have responded with moderation. China is a positive illustration, practicing the “art of non-war” as HSBC’s China economics team has said.
Potentially more important economically are trade developments across the rest of the world. As the US’ share of global goods and services imports has slipped below 15 percent, countries representing much of the other 85 percent are still working toward liberalization, including in the Asia-Pacific.
Here are a few examples:
‧ Eleven countries in March signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the revised TTP), a big trade deal covering a region with a GDP of US$10 trillion.
‧ The Chinese-led Belt and Road Initiative is under way, promoting trade-related investment that could total US$1.4 trillion.
‧ Negotiations for the Regional Comprehensive Economic Partnership are advancing, with the 22nd round completed last month and the next round set for July 17 to July 12 in Bangkok.
‧ Implementation of the WTO Trade Facilitation Agreement and related measures is progressing (the UN Economic and Social Commission for Asia and the Pacific estimates full implementation could cut the cost to trade in the region by a quarter).
‧ Last month, the EU Council authorized trade negotiations with Australia and New Zealand. It also adopted a ratification path for trade deals that could move pending accords with Japan, Singapore and Vietnam.
As trade liberalization advances in the Asia-Pacific, the US risks missing out. Through negotiated market opening, the US could better tap into markets growing at 4 percent annually or more, a mutually beneficial prospect.
Failure to do so could leave the US sidelined from one of the world’s most dynamic regions.
Douglas Lippoldt is chief trade economist at HSBC Global Research.
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