Trump’s Vice-President Mike Pence addresses American CEOs in Jakarta on April 21 2017, flanked by Indonesian counterpart Jusuf Kalla (Simon Roughneen)
But U.S. is now more protectionist, a response to long-standing barriers to commerce with Asian countries
JAKARTA — A week after announcing tariffs on washing machine and solar panel imports, U.S. President Donald Trump claimed that “the era of [U.S.] economic surrender is totally over” during his maiden state of the union address.
But the speech did not go into detail on trade with Asia or about the Trans Pacific Partnership, an American-led Asia-Pacific free trade deal that Trump withdrew from one year ago.
During his hour and half address, which came Wednesday in Asia, Trump briefly recycled some of his previous trade rhetoric, saying he expects it to be “fair” and “reciprocal.”
Pledging to “fix bad trade deals,” Trump promised to “protect American workers and American intellectual property, through strong enforcement of our trade rules.”
Trump lauded Japanese carmakers Toyota and Mazda for announcing new production plants in the U.S. He also suggested that his recently announced tax cuts could spur inward investment. In a related matter, the president pledged to spend $1.5 trillion — an amount almost equal to South Korea’s gross domestic product — on roads, ports and other infrastructure improvements. The outlay, if it comes off, could lead to lucrative contracts for overseas companies.
Trump mentioned no additional protectionist measures, nor did he give any details about long-expected measures against China to fight alleged intellectual property theft and other issues.
Trade officials are expected to report to Trump later this year on the alleged infractions. Asia is already anticipating the outcome. “It remains to be seen whether the U.S. will impose trade measures after completing these investigations,” said Hoe Ee Khor, chief economist at the ASEAN+3 Macroeconomic Research Office in Singapore.
Trump’s speech came a week after he told the World Economic Forum in Switzerland that the U.S. would “no longer turn a blind eye” to what it sees as unfair trade practices.
And though the speech said little about trade, Trump echoed the recently published U.S. National Security Strategy document by describing China, along with Russia, as a rival that “challenges our economy.”
Speaking in Davos last week, Commerce Secretary Wilbur Ross repeated criticisms of China’s protectionism. “The Chinese have for quite a little while been superb at free trade rhetoric and even more superb at highly protectionist behavior,” Ross said.
While China has been the main target of the U.S. government’s allegations of rigging trade, other Asian countries have a protectionist track record.
The Centre for Economic Policy Research’s Global Trade Alert in mid-2017 reported that India and Indonesia — whose finance minister, Sri Mulyani Indrawati, this week called on the U.S. “not to destroy the world” with protectionism — have each raised tariffs in over 2,000 product categories since 2008.
“Jokowi [Indonesia President Joko Widodo] has been reluctant to roll back protectionist and anti-foreign regulations,” The Lowy Institute, an Australian think tank, noted last April.
Within Asia’s regional economic blocs it is not hard to find evidence of protectionism, often in the form of subsidies, import quotas, difficulties in registering foreign workers and other non-tariff barriers.
In a recent paper for the ISEAS-Yusof Ishak Institute in Singapore, Sanchita Basu Das said that while the Association of Southeast Asian Nations had been praised for cutting tariffs among its 10 members, intrabloc trade remains hampered by “non-tariff barriers such as cumbersome customs procedures, national standards, local content requirements, export/import taxes, lack of transparency.”
Protectionism elsewhere means that the U.S. can argue it is merely following policies seen around the world. “I have long argued that if the Trump administration goes looking for foreign trade distortions they will find them,” said Global Trade Alert researcher Simon Evenett, also a professor of international trade and economic development a the University of St. Gallen, in Switzerland.
Evenett cautioned, however, that tariff imposition by one country, even if perceived as justified, can lead to retaliation elsewhere — a prelude to a trade war. “Even if there are no innocents in the trade policy business, it is important to recall Gandhi’s saying: An eye for an eye leaves the whole world blind,” he said.
The U.S. is renegotiating a 2012 free trade agreement with South Korea, a deal Trump has described as “horrible.” The tariff announcement from earlier this month will hit manufacturers in China and South Korea. As such, they will not only overshadow the KORUS renegotiations but potentially put the skids on some U.S.-bound investment that Trump had hoped to increase with a recent tax cut.
“LG is building its U.S. washer manufacturing facility in Clarksville, Tenn[essee], the most advanced factory in the world. The result of this case hinders the ramp-up of the new plant and threatens many new U.S. jobs,” the Korean company said.
There are concerns in the U.S. that Trump’s protectionist route will lead to counter-measures implemented by other countries which could hurt American exporters. Sen. Pat Roberts, a Republican who heads the U.S. Senate’s agriculture committee, told party colleagues on Jan. 23 that the solar panel and washing machine tariffs announced the day before could prompt counter measures which could harm American farmers. “You always, when you put a tariff on things, invite a retaliatory measure that usually ends up with agriculture,” Roberts said.
According to BMI Research, it is likely the U.S. will announce tariffs on imported steel and aluminium later this year, and that “China will be the primary focus of protectionist measures.”
But the fact that Trump did not use the state of the union address to announce any new tariffs or to ramp up condemnation of China’s protectionism might be a hint that a less confrontational approach could be tried, in the short term at least: Whatever measures are eventually announced “will be relatively minor,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics.
Trump recently indicated an interest in revisiting American participation in the TPP. However, he could find it difficult to cut a deal to rejoin a grouping the U.S. instigated and then snubbed. Renegotiating “terms that are agreeable to the current TPP-11 countries and meet President Trump’s requirements of a ‘fair and reciprocal’ trade deal will be an immense challenge,” said Ashley Johnson of the National Bureau of Asian Research.
