Trump and China in 2017: How Should ASEAN Respond?

This is an opinion piece by Anbound, Malaysia

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​If 2016 is marred by ‘Brexit’ and the unexpected election of Donald Trump as the US president, then 2017 will be the year we will witness the developments or even the outcomes of these events.

While the impacts of ‘Brexit’ to the ASEAN region are relatively limited, the same cannot be said of the looming ‘Trump’s impact’ to the region.

Considering the highly protectionist posture of the Trump administration, the Asian region has much more to lose from any uncertainties generated from such trade policies.

Will we see the retreat from the tide of globalization which started three decades ago?

During the World Economic Forum (WEF) meeting in Davos, Switzerland, the Chinese President, Xi Jinping, has somehow provided an answer to such question.

In his speech, Xi alluded that there is a growing dissent around the world on the adverse impacts of globalization: increasingly unequal distribution of wealth between haves and have nots as well as the asymmetrical distribution of power and representation between the emerging and advanced economies.

Indirectly referring to those leaders who preached extreme nationalism and protectionism, Xi called for all countries to adhere to the historical trend of globalization while at the same time, work within the system to reform the current global governance order and to improve wealth equality among the international society.

By all means, Beijing has shown its clear intent to play a bigger role in defending and reforming the liberal international order, seen today as being challenged by rising nationalism and protectionism around the world.

By comparison, President Trump does not hesitate to pull the US out from the Trans-Pacific Partnership Agreement (TPP) on his first working day in the White House.

And this is despite its potential generative impacts to the American economy and years of negotiations among the trade officials from the twelve countries, including four ASEAN member states.

More importantly, it seems that Trump himself is so eager to execute his promises made during his presidential election campaign, with the main gist to place ‘America First’ in trade policies.

As he repeatedly declared in his election campaign, bilateral trade agreements will be his main preoccupation to expand American economic interests and not multilateral economic partnerships, such as TPP.

Hence, as far as Trump is concerned, the relatively impactful multilateral free trade or global market integration is as good as history.

Now, with the trade policy directions of both Beijing and Washington clearly outlined in recent weeks, what do these two disparate global visions entail?

How should we, as ASEAN, chart our future in light of this emerging trend?

Among all the TPPA members, Malaysia, Singapore, Vietnam and Brunei must recognize that the TPPA will no longer be an alternative economic partnership pact in the region and any move to salvage it will be futile as the US is longer part of it.

Furthermore, we should be cautious on the eventuality that we can tap into the world’s largest market through new free trade arrangements (FTAs) with Washington.

Given Trump’s strong conviction to put American interests beyond anything else, entering into bilateral FTA or comprehensive economic partnership (CEP) talks with the US will be almost as a formidable task as committing to the TPPA.

Second, ASEAN countries should work in urgency to strengthen our own market integration process via the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP).

As most ASEAN member states (with the exception of Singapore) are not considered open markets, regionalism is still the main safeguard for the region.

Hence, it is timely for us to recalibrate our economic growth model that depends heavily on the Western export markets and instead, expand our regional economy not just within ASEAN, but also with China, Japan, South Korea, India, Australia and New Zealand.

Notably, these are our external partners in which ASEAN has concluded FTAs for the last several years and most of them are the latter’s long-time important trading partners and investors.

In particular, the demise of the TPPA means that the flexible, lower-based and accommodative approach which determine the free trade negotiations and agreements between ASEAN and its external partners, continues to be the main ‘recipe’ for the day.

Both within RCEP, AEC, and China-ASEAN Free Trade Area (CAFTA) have their roots from such approach ─ sensitive products and industries are shelved for future negotiations with the parties concluding these agreements based on those items that have agreed upon.

While this approach helps ASEAN nations and their external partners to circumvent the Single Undertaking principle evident in the WTO-led global FTA and TPPA cases, it is also a double-edged sword. it can also be a pretext in which countries continue to keep low market access level towards each other.

This is definitely a setback to Asian nations which will soon feel the brunt from Trump-induced market volatilities.

ASEAN member states and the other active leading member, China, should push for relatively higher standards of liberalizations in RCEP, to ensure that this agreement is more than just another low-quality regional FTA.

Among others, RCEP should be one of the best alternatives, if not the best, to TPPA in the region.

Higher quality of FTA is what the region needs to explore new markets within themselves and reduce as much as possible the impacts from Washington’s protectionist policies.

Finally, ASEAN countries should also prepare for the possible trade wars between the US and China as the Trump administration is bent on imposing high tariffs for the Chinese goods and labelling China as a currency manipulator, despite violating international trade laws and causing huge stirs in the Republican camp by doing so.

While many skeptics believe the Trump administration will not be able to navigate these systemic constraints, one should not underestimate Trump’s ability and level of conviction in imposing these trade restriction policies.

Just think at how most observers underestimated his possibility of becoming the 45th US president and we will know it is hard to write him off from this matter.

And when the day these restrictive measures are imposed, be sure that Beijing will counteract through similar measures for American goods, services and companies.

Being part of the supply-chain for the Chinese goods exported to the US, it is unrealistic to think ASEAN countries will be shielded from such a trade war.

In particular, we should adopt more than just ‘wait and see’ attitude for relevant developments and proactively find ways to mitigate the potential consequences.

One way is to engage the US and China earlier to lobby for solutions that will alleviate the pressures exerted upon our product entries.

This may reduce the adverse impacts towards our economies.

The case of Japanese government engaging Trump as early as he was elected as the US president, should be a reference for other ASEAN fellow countries.

So, coming back to our main question: Will we see a retreat of globalization in the world? The answer is a certain yes.

The rising anti-establishment trend in the Europe and America is giving impetus to the forces of extreme nationalism and protectionism in these two continents.

As for the ASEAN region, it is fortunate that such current does not dominate the mainstream politics of the member countries.

Southeast Asian countries should do more than just adopting a ‘wait-and-see’ attitude to gauge the impacts of Trump’s protectionist policies towards the region.

On top of that, they should work in urgency in solidifying economic regionalism as the principal buffer for ASEAN countries to weather the uncertainties this year.

The article is contributed by Anbound Malaysia, a subsidiary of Anbound China which is a leading independent think tank based in Beijing.

For any feedback, please contact: lcleong@anbound.com.