Commentary: As summits approach, winds of trade war hit region

Commentary: As summits approach, winds of trade war hit region

Leaders gathering for the upcoming ASEAN and APEC summits should lead the movement back to a new and more stable trade consensus, says trade expert Evan Rogerson.

SINGAPORE: A high-level gathering of trade experts in Singapore last month emphasised how US-China trade tensions are already affecting the Asia-Pacific region.

As leaders gather for the upcoming ASEAN and APEC Summits, they face a deepening trade crisis that shows no signs of easing.

The first Singapore Trade Policy Forum, organised by the Centre for Multilateralism Studies of the S Rajaratnam School of International Studies at Nanyang Technological University, brought together 40 experts from governments, business and universities across the region for an in-depth discussion of current threats to the trading system and what to do about them.


Business leaders in Singapore and beyond are increasingly concerned over the fall-out from the trans-Pacific confrontation. The weakening of the World Trade Organisation (WTO), the only global trade safety net, is also a growing worry.

Businesses fear the uncertainty arising from unilateral trade measures. This is having an effect on investment decisions and may lead to the relocation of investment away from China.

Some regional players could benefit from this, but overall the costs, in terms of disrupted supply chains and trade distortion, will be high.

The latest forecasts from the IMF highlight the global scale of the effects. There are no signs of these negative effects on growth and confidence abating. On the contrary, they are expected to intensify in 2019.

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The US-China situation is hard to resolve because trade policy is only one aspect of a growing geopolitical rivalry. Some have talked of a new Cold War, and Vice-President Mike Pence’s recent speech accusing China of interference in the US’s mid-term elections gives weight to this.

However China’s economic power, still greater than the Soviet Union’s ever was, should restrain any thoughts of an easy trade war win for the US.

With trade growth set to slow sharply amid a trade war between the US and China, the IMF cut its
With trade growth set to slow sharply amid a trade war between the US and China, the IMF cut its outlook for global GDP by two-tenths to 3.7 percent for 2018 and 2019. (Photo: AFP/Mark RALSTON)

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The expectation that China’s WTO accession would lead it to converge with western norms has proven false. Instead we have competing models of capitalism, state and market, both deeply rooted in their political systems.

At the Singapore Trade Policy Forum, it seems participants understood the concerns that the US and other traders have about China’s policies, for example on state-owned enterprises, digital trade and intellectual property. These predate the Trump administration and are widely shared in governments and business.

However, they were also worried about the US administration’s preference for unilateral action over strengthening the multilateral system, its apparent lack of a coherent strategy or an inclusive view of business interests and its relations with regional countries.

In particular, pressure to take sides in the dispute - to “choose a lane” as a US official put it recently - was seen as something to be resisted. 

If anything, it is likely that current US tactics will reinforce hardliners in China and make reforms in areas where there are legitimate concerns less likely. It was also suggested that they might accelerate China’s move towards less reliance on trade as its economic driver.

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No one expects that either side will change course soon. There is no quick fix in prospect.

Instead, the Forum focused on what businesses and governments in the region can do to limit the fallout. In the short term, the key word is containment. This means, in particular, pushing ahead with regional trade agreements.

Signs with the US and Chinese flags hang outside a store selling foreign goods in Qingdao, in
Signs with the US and Chinese flags hang outside a store selling foreign goods in Qingdao, in China's eastern Shandong province, a day after Beijing announced an additional US$60 billion in retaliatory tariffs on US good as part of a trade war. (Photo: AFP

The entry into force of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will send a strong signal of commitment to open and cooperative trade policy. So would conclusion of the negotiations over the Regional Comprehensive Economic Partnership (RCEP).

While as a trade agreement like the RCEP is not as ambitious as the CPTPP, its country coverage gives it great political importance. Negotiators aim to get at least a long way towards finalising it by the end of the year.

Bilateral and other new regional free trade agreements (FTAs) are also increasingly important between Asia-Pacific economies and others, particularly the EU.

Completion of the Japan-EU FTA last year was spurred on by concerns about the deteriorating trade environment and the need to reinforce the benefits of integration. It is likely to serve as a template for the agreements that the EU will negotiate next, with Australia, New Zealand and possibly Mercosur (the Common Market of the South comprising Argentina, Brazil, Uruguay and Paraguay).

And looking beyond Brexit, the UK’s interest in joining CPTPP has generally been well received.

The importance of other platforms for regional cooperation was also endorsed. APEC in particular can provide, through its inclusive membership and its non-binding, consultative nature, a venue for quiet diplomacy where smaller economies can work to influence China and the US.

The possibility of using the good offices of the WTO Director-General to mediate between the US and China was also raised at the Forum. This is possible under WTO rules, but both sides would have to be in the market for it, which is clearly not the case now. 

Perhaps some such mediation could become relevant as part of finalising and working out an eventual deal if the two are able to find common ground.


Over the longer term, reinforcing the WTO system is vital. The rules need updating and clarifying, but this can’t mean just targeting China.

Leaders of 11 nations sign a slimmed-down version of the TPP trade agreement, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Santiago, Chile, on Mar 8, 2018. (Photo: AFP/CLAUDIO REYES)

All the major trading powers are on the spectrum of subsidisation, for example. And systemic changes alone are not a cure-all. It’s how its members use the WTO that matters.

It is also important not to push the system beyond its limits. The WTO dispute settlement system, already under severe pressure, cannot resolve the fundamental US-China conflict. The way forward has to be through negotiation.

Mobilising more active business support for the multilateral system is also essential. This has to go beyond just making statements - effective political lobbying is needed. National and regional business groups have an important part to play here. Recent surveys show their members now see this as a higher priority than in previous years.

Some hope that the US will eventually move away from unilateralism if it becomes concerned about FTAs hampering its access to the 95 per cent of the world’s consumers who live outside its borders.

The epicentre of growth is still Asia, with its expanding middle class demand. This puts the region’s governments and businesses in a key strategic position.

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With growing economic clout and close links to both China and the US, the other countries of the Asia-Pacific region are uniquely well placed to weigh in on the side of cooperation and managing competition. 

They can and should lead the movement back to a new and more stable trade consensus.

Evan Rogerson is adjunct senior fellow in the Centre for Multilateralism Studies at S Rajaratnam School of International Studies, and the convener of the Singapore Trade Policy Forum. He was formerly a Director at the WTO and has more than 40 years’ experience in trade policy.

Source: CNA/nr