Trade storms brewing after Trump's Asia trip

Trade storms brewing after Trump's Asia trip
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There was a great deal of angst in Asia ahead of President Trump’s first visit to the region.

Japan was concerned that it would be formally asked to initiate bilateral free trade negotiations with the U.S. Korea was worried that President Trump would announce that he would withdraw from the U.S.-Korea Free Trade Agreement (KORUS).

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China was wary about specific requests that President Trump might make to address the large and growing bilateral trade deficit between the two countries. Vietnam and the Philippines, which both saw their bilateral surpluses with the United States grow this year, shared similar concerns.

 

At each stop, President Trump did raise the need for fair, balanced and reciprocal trade, culminating in a speech to the Asia-Pacific Economic Cooperation (APEC) CEO Summit in Da Nang, Vietnam, where he stated that the U.S. would no longer be “taken advantage of” in trade.

He rebuked multilateralism and made it clear that from now on, the United States was only interested in bilateral deals based on the principles of fairness and reciprocity. 

But none of the concerns of our Asian trading partners materialized. In Tokyo, the president suggested Japan purchase more military equipment from the U.S., and President Trump and Prime Minister Abe agreed to “accelerate engagement on trade” through the ongoing economic dialogue chaired by Vice President Pence and Deputy Prime Minister Aso.

In Seoul, Presidents Trump and Moon instructed their officials to “conclude an improved [KORUS] agreement expeditiously.” In Beijing, President Trump welcomed the announcement of business deals valued at over $250 billion between U.S. and Chinese companies in a wide range of sectors, including energy, transportation and agriculture.

In Hanoi and Manila, the U.S. released joint statements largely agreeing to “deepen and expand the bilateral and investment relationship,” which could have well been issued by a previous administration.

While our Asian trading partners may be tempted to breathe a sigh of relief now that the trip is over, they shouldn’t. We are entering a critical period on trade when the president will make important decisions on the fates of NAFTA and KORUS, along with a series of trade investigations initiated under U.S. trade laws and possibly additional investigations as well. Each decision has its own complexities, and each will affect Asia.

At the last negotiating round for NAFTA, the U.S. put forward a series of proposals on rules of origin, dispute settlement and the sunset clause, which raised eyebrows in Canada and Mexico. As negotiators roll up their sleeves at this week’s session in Mexico City, will they be able to make headway on any of these proposals? 

Or will they focus on the less controversial proposals in order to build momentum? Even if the latter, at some point soon, this negotiation will face a moment of truth.

Lack of meaningful progress on the issues of key importance to the administration may lead U.S. Trade Representative Robert LighthizerRobert (Bob) Emmet LighthizerMcConnell urges GOP senators to call Trump about tariffs Companies brace for trade war MORE to start the procedures to withdraw from NAFTA. This would have a chilling effect on all of our trading partners, not just Canada and Mexico.

The fate of the KORUS amendment process is also in the wind. This agreement has already undergone two renegotiations, making it difficult for Korea to make additional moves. Moreover, it’s unclear whether the United States is genuinely prepared to address Korean requests, a must for Korea if it’s to gain domestic support and legislative approval.

Finally, the U.S. trade deficit with Korea has been steadily declining in 2017, leaving Korea scratching its head on why it’s being singled out, particularly given the rising and grave tensions on the Korean Peninsula. The upcoming weeks will reveal whether KORUS engagement is headed toward success or failure.

Beyond NAFTA and KORUS, numerous deadlines are approaching for U.S. decisions on a series of U.S. trade law cases. These include the section 201 safeguard cases on imports of solar panels and washing machines; the section 232 national security investigations on steel and aluminum imports; and the section 301 investigation on Chinese intellectual property rights practices.

All of these decisions are complicated, pitting different domestic constituencies against others and requiring the president in many respects to decide which U.S. jobs are more important.

While the imposition of restrictions on steel imports may be welcomed by the steel industry and workers, for example, they may hurt the U.S. auto sector. This would increase the price of cars and trucks, making them more expensive for consumers and less competitive in global markets. 

Nevertheless, based on the administration’s “America First” statements to date, we should expect action to be taken in a number, if not the majority of these cases. Any combination of these potential actions and negotiating outcomes could have profound effects on our trading partners, from a commercial, economic and geostrategic perspective.

Countries in Asia, in particular, should prepare themselves for what may come their way. Some are already doing so, for instance, by seeking to reduce their dependence on the U.S. market and forge trade agreements, like the Trans-Pacific Partnership-11 (TPP-11), without the United States.

In short, the U.S. is driving them away. How this benefits American interests and puts America first is hard to understand.

Wendy Cutler is the vice president and managing director of the Washington, D.C. office of the Asia Society Policy Institute, an organization that seeks to be a bridge in problem-solving within the region and between Asia and the wider world. Cutler served as acting deputy U.S. trade representative, working on a range of U.S. trade negotiations and initiatives in the Asia-Pacific region, including as chief  U.S. negotiator of the U.S.-Korea (KORUS) Free Trade Agreement.