The economic gains generally outweigh any trade-related adjustment costs by a large margin. According to one big historical study1, countries that liberalised their trade regimes were able to accelerate annual economic growth on average by about 1.5 percentage points.
Among the Asia-Pacific nations we can see this in action. Global, regional and bilateral accords are delivering increased market openness. This rules-based framework is helping to reduce policy uncertainty and impose discipline against unfair trade practices. Clearly, there is room for improvement, but overall this framework works well. The region has seen real GDP growth of 4.0% or more annually since 2010, well ahead of the global average. Over the same period, export growth in the region has beaten the global average every year except for 2015-2016. HSBC forecasts2 these trends will continue this year and next. The Asia-Pacific region is demonstrating the potential of trade to contribute to improved welfare.
However, the US administration is resisting such an open approach to trade. In striving for balanced bilateral trade flows, the US appears willing to limit imports as it promotes exports. The US has withdrawn from the Trans-Pacific Partnership. It has proposed reforms of NAFTA, but announced its intention to withdraw if US requirements are not met. The US is not keen on new regional deals, preferring bilateral negotiations where it hopes to use its clout to win more concessions from partners. The US authorities have launched numerous trade actions under anti-dumping, countervailing duty and safeguard provisions.
Perhaps more unsettling for the multilateral trading system, the US has employed a tough interpretation of certain WTO rules. In March, the US referenced national security concerns to impose new tariffs on steel and aluminium, going beyond the traditional view of the relevant WTO provisions. Despite granting some exclusions and temporary exemptions, this still set a potentially damaging precedent. In the case of China, the US also used a domestic law (already the subject of challenges at the WTO) to allege unfair trade practices and propose further tariffs on Chinese imports and investment.
Fortunately, partner dialogue with the US on these issues continues. Formal consultations have been requested at the WTO by US partners including some Asian-Pacific nations. Direct bilateral talks have been launched with China, Korea and Japan (among others). Indeed, Korea concluded a revision of its bilateral agreement with the US, providing for some liberalisation. However, this also entailed Korea's acceptance of restrictions on exports of steel to the US. Enforcement concerns have also been raised at WTO, where the US has questioned the purview of WTO dispute resolution findings.
While the use of strong trade actions may enable the US to gain negotiating clout, its willingness to exit from existing accords creates uncertainty about present and future deals. So far, most American trade partners have responded with moderation. China is a positive illustration, practising the "Art of non-war" as HSBC’s China economics team has noted3 .
Potentially more important economically are trade developments across the rest of the world. As the US share of global goods and services imports has slipped below 15%, countries representing much of the other 85% are still working toward liberalisation, including in the Asia-Pacific. Here are a few examples:
- Eleven countries signed the CPTPP (the revised Trans-Pacific Partnership) in March 2018, a big trade deal covering a region with a GDP of USD 10trn.
- The Chinese-led Belt and Road Initiative is underway, promoting trade-related investment that could total USD 1.4trn or more4 .
- Negotiations for the Regional Comprehensive Economic Partnership are advancing, with the 22nd round completed in May; the next round is set for 17-27 July in Bangkok.
- Implementation of the WTO Trade Facilitation Agreement and related measures is progressing (the United Nations Economic and Social Commission for Asia and the Pacific estimates full implementation could cut the cost to trade in the region by a quarter.)
- In May, the EU Council authorised trade negotiations with Australia and New Zealand. The Council also adopted a ratification path for trade deals that could move pending accords with Japan, Singapore and Vietnam.
As trade liberalisation advances in Asia-Pacific, the US risks missing out. Through negotiated market opening, the US could better tap into markets growing at 4% annually or more, a mutually-beneficial prospect5 . Failure to do so could leave the US side-lined from one of the world's most dynamic regions.
1. Wacziarg and Welch, World Bank, 2008
2. HSBC Global Research, 4 May 2018 - The trade bike hits a wall
3. HSBC Global Research, 26 March 2018 - US Trade Policy moves
4. Zhai, Journal of Asian Economics, 2018
5. HSBC Global Research, 27 February 2018 - US Trade Policy