Asia is well-positioned to seize the initiative in trade, writes Douglas Lippoldt, Chief Trade Economist, HSBC Global Research.
It is time for Asia to seize the initiative on trade. Although trade liberalisation has contributed significantly to global economic growth, prospects for further market opening have dimmed in some regions. The emergence of populist and nationalist sentiment in the United States and some parts of Europe has disrupted progress. Examples include the United Kingdom’s vote in June 2016 to exit the European Union (EU) and US President Donald Trump’s decision in January 2017 to withdraw the United States from the Trans-Pacific Partnership (TPP).
Protectionism is also mounting. For example, the G20 nations have continued to launch new trade restrictive measures faster than they remove them (see chart).
Is this the shape of things to come in international trade? Perhaps not. Attitudes to trade liberalisation are generally very positive in Asia.
As of 2014, some 86% of Asians surveyed said that growing international trade and business ties were good for their country (Pew Global Attitudes Survey). Such attitudes are not surprising in light of the positive relationship of market openness to economic growth in Asia (OECD, 2012). Recognising this, Asian leaders are pursuing a variety of ambitious initiatives to promote trade liberalisation and regional integration.
Progress in Asian trade deals would demonstrate to the world that the region is indeed still open for commerce. Areas for immediate action include conclusion of the 16-nation, pan-Asian Regional Comprehensive Economic Partnership agreement (RCEP) and reaching an agreement for ratification of the TPP without the United States. Completion of these deals could be important economically as well as politically.
And RCEP and TPP could both still advance this year. The RCEP schedule includes a ministerial conference on September 10 in the Philippines and the 20th round of negotiations on October 17 – 28 in Korea. The 11 remaining TPP members are planning to meet at the APEC Economic Leaders Meeting on November 10-11, 2017 in Vietnam. However, there are obstacles to be overcome.
Attainment of the original RCEP objectives to liberalise goods, services and investment offered a chance to boost the GDP of the region on the order of US$600bn or an additional 1.8% (Petri, Plummer and Zhai, 2014). But given the challenges of negotiating among such a diverse group of countries – including the 10 ASEAN members, plus Australia, China, India, Japan, Korea and New Zealand – the level of ambition may need to be scaled back to get buy-in. For example, some members may insist that sensitive sectors such as steel require a slower pace of liberalisation or need to be excluded from full tariff liberalisation entirely. Still, RCEP could generate significant gains, proportional to the scale of liberalisation achieved.
Likewise, for TPP. The original deal was expected to deliver increased income to the members of about US$465bn, amounting to an additional 1.1% of GDP (Petri and Plummer, 2016). This will no longer be achievable without the United States. Some additional adjustments may need to be negotiated in order to finish the deal, as some partners will want to prune back concessions in light of the smaller size of the market being liberalised. But the accord can still establish a high-standards framework for expansion of trade in the Pacific Basin.
And there are other areas for action in the region. Longer-term goals include implementation of the ASEAN Economic Community Blueprint 2025 (including services trade liberalisation) and the WTO’s Trade Facilitation Agreement. Development of the Belt and Road Initiative launched by China in 2013 could provide a massive, strategic boost to infrastructure development in the region. In addition, further bilateral deals may be done including finalisation of the EU-Japan free trade agreement. Such positive steps are expected to contribute positively to trade and growth.
GDP in the Asia Pacific region is growing at a rate well above the world average. HSBC forecasts a pace of 4.2% for the region in 2017 versus 2.7% for the world. But economic uncertainty persists and growth seems fragile. Asia should respond with further pursuit of rules-based, market-opening trade policies and appropriate flanking policies (for example, education, social safety nets, restructuring of excess industrial capacity).
Such liberalisation is in Asia’s own economic interest – and it sends an important signal to the world. The ball is in Asia’s court. Now is the time to act.