Let region. The withdrawal has forced geopolitical lines

Let us now take a closer look at the present scenario.
In South East Asia we will be focusing on China, India, Singapore, Malaysia,
Hong Kong and Philippines. We will be looking at the how the rise of
protectionism in the US is affecting these countries. Apart from the effect of
western protectionism we will take a brief look into the nature of the trade
policies followed by these nations and that affects regional trade.

Let
us first consider the policy shifts and news pertaining to protectionist policies
in the US since the onset of the new administration. US has
been the bastion of modern protectionism as matter it never followed free trade
until 1945 when the WWII wiped out most of its industrial competitors. President
Trump’s stance can clearly be ascertained from his first address to the joint
session of the US Congress “Currently, when we ship products out of
America, many other countries make us pay very high tariffs and taxes. But when
foreign companies ship their products into America, we charge them nothing, or
almost nothing… I believe strongly in free trade but it also has to be fair
trade”. Some of the key
decisions that affect trade are as follows:

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·       Withdrawal from Trans-Pacific Partnership:
US withdrew from the TPP through executive mandate when Trump took power. Potential
members had invested heavy political capital to bring about the deal. The
withdrawal increased uncertainty among U.S. allies about the reliability of the
U.S. on different geopolitical and economic issues/matters. It is the first
time the U.S. has backed out from an agreement it championed to other
countries.

 

The previous administration had hoped to
strengthen US interests in Asia and provide China strong inducements to
integrate into and support a U.S. led order however the withdrawal in January
2017 marks a major blow to these ambitions.

 

Countries in the region have responded to the
withdrawal by seeking China’s favour in the region. The withdrawal has forced
geopolitical lines to be redrawn in the region.

 

 

·       Re-negotiation of NAFTA (North
American Free Trade Agreement): US under Trumps directive has opened talks to
re-negotiate NAFTA to try and reverse trade deficit. The US trade deficits with
the NAFTA countries is just under 10% of its total trade deficit. President
Trump is not a fan of the treaty and has made his displeasure known on many an
occasion. 

 

 

The focus of the
renegotiation lies with regaining US manufacturing jobs and eliminating trade
deficit with Mexico. A unilateral US exit from NAFTA before the mid-term
elections in Nov 2018 is a real possibility, the move would reduce US GDP by
half a percent but would heavily catastrophically damaging to Canadian and
Mexican economies.

 

·       Renegotiation of US- South Korea Free
Trade Agreement (KORUS): The current administration has
faced stiff opposition to the proposal exit from KORUS. Instead they have begun
the process to renegotiate the treaty to address the severe trade deficit.
The
discussion took place during Trump’s Asia visit in late 2017.

 

·       Increase in Tariffs: US
has placed trade restrictions on more than 400 products from more than 40
countries. The administration’s rationale for pursuing this course of action is
based on Department of Commerce’s report which has determined that certain
imports are being sold in US at unfairly low prices due to favourable
conditions like cheap labour, government subsidies, tax breaks back in home
countries.  The laws give the government
authority to impose duties to bring prices to fair levels.

 

·      
Major Trade Cases in Progress / Pending with the President

 

o   Boeing – Bombardier: This is dispute brought forward
by Boeing regarding unfair pricing by Bombardier in the US of its C series
aircraft. The DOC imposed a hefty 300% duty on the crafts as response which has
soured US-Canada Trade relations with each side threatening escalating response
to an already contentious situation. The final decision is due in Feb, 2018.

There already has been retaliation from Canada’s end
with the cancellation of Boeing Defence contract. Even UK has weighed on the
issue as it affected due to the fact that the Bombardier factor is present in
UK.

 

                                                                                                         

o   Steel & Aluminium: This is regards to the proposed
sweeping barriers against steel imports based on investigation opened on 19th
April 2017. The investigation aims to find how steel the US needs to protect
its national security. This is indirect to steel dumping by China across the
globe. The investigation has gathered a great deal of domestic support from
steelworkers that have lost jobs due to cheap foreign imports. Many US allies
have expressed protests saying that the burden of tariffs will pass onto their
companies. There is a similar case for Aluminium as well. In both cases the
targeted countries can go after the US in the WTO if restrictions are placed.

o    

o    

o   Solar Power: The deadline for this decision is Jan 26,
2018 and it deals with two companies Suniva and Solar World. They have argued
for restrictions against cheap Chinese products in this domain to ensure that
the American solar industry is not gobbled up by the foreign competition. These
companies have brought a “safeguard case”. Under this type of case the
president has broad range of powers to help any ailing sector.

o   Washing Machines (Whirlpool): This is a safeguard
case, very similar to the solar power one. Whirlpool has brought this case
against its South Korean rival LG and Samsung. It hopes to get increased
tariffs or limit the no of machines entering the US market. Its claims that LG
and Samsung have moved production to different parts of the world to
effectively dodge tariffs. Final decision is due by 2nd Feb, 2018.

 

·      
Outlook on Chinese Imports and Investments: Trump has been very vocal about how china has been
stealing US jobs and taking advantage in trade. In Aug, 2017 the current
administration launched a special investigation into China’s intellectual
rights policy. Currently China forces/coerces companies to share intellectual
property as a precursor condition to doing business locally. The investigation
looks in to transfer of technology that can potentially help Chinese producers
to get an unfair advantage over their American counterparts. This is one of the
most critical issues on which a retaliation on China’s end can trigger a trade
war.

 

·      
Visa Restrictions: US
has recently imposed restrictions on H1B visas. The move restricts labour
movement from countries like India and China. Major firms from these countries
have been affected by the sweeping changed. The change has strained
relationships and drawn sharp criticisms internationally.

 

Other than shifts
in US policy the BREXIT vote raised a cloud uncertainty for SEA region’s trade
with EU and UK. UK’s exit from the EU is important from an international supply
chain perspective for firms from the SEA region. In the immediate aftermath of
BREXIT most ASEAN leaders had positive reaction to the results of the referendum.
Many ASEAN Countries have UK as one of their primary exporters and any negative
impact on UK economy would influence these economies.

The negative impact on UK due to BREXIT is expected to
be in trade and investments. This can potentially set off a chain reaction that
affects investments in ASEAN region due to prevailing uncertainty in the UK.

 

There have been
subtle shifts in trade policies in South East Asia. Let us take a country wise
overview of their current and historic outlook towards free trade:

·      
China:
There have been recent reports that even though the government is endorsing its
efforts to ensure free trade and level playfield for the foreign investors the
ground reality is quite different. Their public stance can be gauged from the
speech given by Xi Jinping at the WTO extolling free trade principles. Concerns
have been voiced by investors on the ground regarding growing protectionism.
Most manufacturing ventures are forced to become joint ones, there is often
pressure for transfer of technology and the service sector is unofficially off
the table. However, investors are hopeful that with recent commitments made by
the Chinese the rhetoric is changing.

 

·      
India:
The country has been notorious for its protectionist policies coming second
only after the US. It was a closed economy till liberalisation was induced in
1991 as part of a IMF bailout. The country has thrived by maintaining a fine
balance between protectionism and free trade. Dependent on its service sector, the
country stands to lose a lot if protectionism rises unabated in the West. It is
to be note that India has considerable domestic consumption that can fuel
growth thus is somewhat insulated to the effects of rising protectionism in
other countries.

 

·       Hong Kong: Hong Kong just signed long-awaited free trade
agreements with ASEAN on 12th Nov, 2017. The deal had been under
discussion since 2014. Under the new arrangement Hong Kong’s businesses will
enjoy reduced tariffs, fewer restrictions and better protection in ten
countries in the region for the foreseeable future. Hong Kong has been steadily
moving towards free trade, it has a protectionist history. The fact is evident
from reports issued regarding the Bay Area Plan in China which clearly outline the
greatest challenge to development of the city cluster has been protectionism
and the Bay region cities are finding it hard to collaborate.

 

·       Singapore: Singapore has been advocating globalisation and free
trade for quite some time. It has been a vocal critic of protectionism. The
country is making considerable efforts towards liberalisation.  The state has been encouraging start-ups as
evident from the statement given by Dr. Koh Poh Koon (Singapore’s Minister of State for Trade and Industry):”The rising global protectionist sentiments
that emerged in 2016 present us with the opportunity to position Singapore as
an attractive startup location for global talent.  Foreign entrepreneurs
have the capacity to add to the vibrancy of our startup scene”