Can Donald Trump’s Economic Nationalism be Countered by the Upswing of Economic Liberalism in Europe and Asia?

BY DAVIT SAHAKYAN (Op-Ed Contributor) 

With America implementing its newly adopted economic nationalism by withdrawing from multilateral agreements as well as imposing new barriers to trade and the UK mired in settling its divorce from the European Union, the rest of the G20 remains firmly supportive of the liberal world order through progress in new trade deals. The question is whether the renewed rise of liberalism in Europe and elsewhere can offset the upswing of nationalism in America and the UK.

Against the backdrop of Brexit and an increasingly protectionist America, the rest of the world remains comfortingly outward-looking. As reported by the Financial Times, the world’s other leading economies have responded to Donald Trump’s trade threats by liberalizing even further.[1] Meanwhile, Europe’s leading economies, such as Germany and France, have vowed to reinforce the EU despite Brexit.[2]

The EU’s reinvigorated embrace of globalization has also manifested itself in new major regional trade accords. After signing the Comprehensive Economic and Trade Agreement (CETA) with Canada in October 2016, the EU was quick to formally agree upon an outline free trade deal with another major economy—Japan—as it was announced by Cecilia Malmström, the EU trade commissioner, and Fumio Kishida, the Japanese foreign minister on July 5, 2017.[3] [4] Although the EU-Japan deal may take some time until officially signed and both agreements are yet to be ratified by the legislatures of the parties[5] before they enter into force, they stand to support the liberal world order that has been showing signs of retreat with the recent rise of (economic) nationalism in America and the UK.

The geography of new trade deals has not been limited to Europe, Canada and Japan alone, however. China, an unusual suspect for the flag bearer of economic liberalization, has emerged as the main promoter of regional economic cooperation in East and Southeast Asia after President Trump withdrew America from the Trans-Pacific Partnership (TPP), the largest regional trade accord between twelve Pacific Rim countries that comprise 40% of the world economy,[6] days after taking office in January 2017. The China-led Regional Comprehensive Economic Partnership (RCEP), which also includes India, Japan, Australia, New Zealand, South Korea, and the ten ASEAN countries (and is currently under negotiation) is seen as a competing trade pact to TPP and one of the elements of economic rivalry between China and America in the region.[7] If RCEP is signed, it will cover 46% of the global population and 24% of global GDP.[8] China is looking even beyond RCEP. In the 2016 Asia-Pacific Economic Cooperation (APEC) forum in Peru, President Xi Jinping discussed the possibilities of an ambitious free trade agreement between APEC’s 21 members as an alternative to TPP.[9] Furthermore, China and Mexico, two countries repeatedly threatened with new tariffs by Donald Trump during his presidential campaign, expressed readiness to start trade talks on the eve of the 2017 G20 Summit in Hamburg, Germany.[10]

It has been argued that regional and bilateral trade agreements do not work in isolation. They not only boost trade and investment between member countries, but also marginalize non-participants by generating discriminatory pressures towards them. The inherent discriminative nature of regional and bilateral trade agreements had, in fact, been exploited by consecutive US administrations for over half a century before Donald Trump’s reversal of America’s outward-looking foreign economic policy in January 2017. Through what he termed “competitive liberalization,” US Trade Representative Robert Zoellick managed to open new markets through regional and bilateral trade agreements in the 2000s. By signing trade pacts with select countries in different parts of the world, Zoellick’s idea was to put pressure on non-participants and make them join the bandwagon under the threat of being left out while their competitors gain preferential access to the lucrative US market. A similar tone was present in America’s economic diplomacy in the early 2010s as well, which helped the US not only to promote globalization but also dictate the terms of the global economic order in line with its preferences.[11] [12]

Now, when America is poised to voluntarily give up its role of the champion of global trade, it may find itself on the other side of the fence. The question is whether the proliferation of trade agreements, especially those led by the world’s other major economies, can generate a critical mass of discriminative pressure to prompt a reconsideration of trade policy in America. True, America is big and strong enough—both economically and politically—not to easily bow against trade discrimination, but it can hardly be economically self-sufficient. Trade liberalization elsewhere, while America keeps erecting new barriers to trade, could put American exporters at a disadvantage. The interconnectedness of economies, which tends to augment discriminative pressure, will matter a lot. The pressure on America as a result of future tariff reductions between China, Japan and South Korea (as a result of RCEP), the EU and Canada, the EU and Japan, as well as China and Mexico (as a result of their respective bilateral trade agreements) would be especially significant, as these countries are among America’s top seven trading partners.[13][14]

References

[1] FT. G20 economies buck Trump’s protectionist trade tone. July, 2, 2017. https://www.ft.com/content/25ae4968-5f32-11e7-91a7-502f7ee26895

[2] FT. Merkel throws down gauntlet to Trump on trade and climate change. June 29, 2017.

https://www.ft.com/content/a8110d7a-5ca1-11e7-9bc8-8055f264aa8b

[3] BBC. EU and Japan reach free trade deal. July 6, 2017. http://www.bbc.com/news/business-40520218

[4] Economist. A new trade deal between the EU and Japan. July 8, 2017. https://www.economist.com/news/finance-and-economics/21724830-besides-slashing-tariffs-cheese-and-cars-it-sends-message-donald-trump?fsrc=scn/fb/te/bl/ed/anewtradedealbetweentheeuandjapan

[5] In the case of the EU, the agreements need to be ratified by all its member states.

[6] Sahakyan, Davit. “The US needs TPP as much as TPP needs the US.” Op-Ed, Atlantic Community, the Open Think Tank on Foreign Policy, November 21, 2016. http://www.atlantic-community.org/-/the-us-needs-tpp-as-much-as-tpp-needs-the-us

[7] Sahakyan, Davit. “The US needs TPP as much as TPP needs the US.” Op-Ed, Atlantic Community, the Open Think Tank on Foreign Policy, November 21, 2016. http://www.atlantic-community.org/-/the-us-needs-tpp-as-much-as-tpp-needs-the-us

[8] CNN, TPP vs RCEP? Trade deals explained. January 26, 2017. http://www.cnn.com/2017/01/24/asia/tpp-rcep-nafta-explained/index.html

[9] Sahakyan, Davit. “The US needs TPP as much as TPP needs the US.” Op-Ed, Atlantic Community, the Open Think Tank on Foreign Policy, November 21, 2016. http://www.atlantic-community.org/-/the-us-needs-tpp-as-much-as-tpp-needs-the-us

[10] CNN. Spurned by Trump, China and Mexico talk about a trade deal. July 5, 2017. http://money.cnn.com/2017/07/05/news/economy/mexico-china-trade-deal/index.html

[11] Sahakyan, Davit. 2016. “Reassessing North-South Relations: The Case of North-South Preferential Trade Agreements.” Journal of International Trade Law and Policy 15 (1): 51-66. http://www.emeraldinsight.com/doi/pdfplus/10.1108/JITLP-11-2015-0040

[12] Sahakyan, Davit. “TPA and Inherent Discrimination Drive US Regional Trade Agreements.” Op-Ed, Atlantic Community, the Open Think Tank on Foreign Policy, July 21, 2015 http://www.atlantic-community.org/-/tpa-and-inherent-discrimination-drive-us-regional-trade-agreements

[13] US Census Bureau. https://www.census.gov/foreign-trade/statistics/highlights/top/top1612yr.html (accessed July 6, 2017)

[14] US Census Bureau. https://www.census.gov/foreign-trade/balance/c0003.html (accessed July 6, 2017)

Image source: ft.com © James Ferguson

About the Author 

Davit Sahakyan, PhD is a professor of economics and an independent analyst based in New York City.

DISCLAIMER: The views and opinions expressed in the article are solely those of the author(s) and do not necessarily reflect the official policy or position of the ERA Institute.