East Asian Integration and Trump’s Trade Protectionism
By Xiaolin Duan

East Asian Integration and Trump’s Trade Protectionism

Apr. 24, 2018  |     |  0 comments

The trade war between the world’s two largest economic powers — the United States and China — seems to be escalating with few signs of ceasefire. Many analysts argue that the catastrophic consequences of a full-scale trade war between them is unimaginable, which will thus incentivize them to eventually start de-escalation and negotiations.

An obvious fact is that it is not only China but also other East Asian countries which will suffer from the trade war. Under US President Donald Trump’s orders on March 9, 2018, the US imposed 25 percent tariffs on steel and 10 percent on aluminum respectively, among which the EU, Argentina, Australia, Brazil, Canada, Mexico, and South Korea were granted exemptions. Japan was not in the exemption list. On April 6, South Korea notified the World Trade Organization that it would suspend tariff concessions on USD 480 million in imported American goods, in response to Trump’s controversial approval of steep tariffs on imports of washing machines and solar energy cells and panels which hurt China and South Korea the most.

What is more, in a globalized world, adding tariffs on Chinese products could hurt the countries who are in the production chain of Chinese manufacturers. This is not good news for Tokyo, considering that Chinese and Japanese industries are interdependent in some key areas. In addition, Japanese Prime Minister Shinzo Abe is embroiled in a domestic political scandal, and this, together with the trade war, will possibly damage Abe’s economic agenda and Japanese economy.

The trade war also caused immense market uncertainty, and most major indices as well as technology stocks around the world tumbled. The stocks breathed a sigh of relief after Chinese President Xi Jinping vowed to further open the Chinese economy, ease market entry by foreign investors into the financial sectors, and cut car import tariffs. Christine Lagarde, the Managing Director of the International Monetary Fund, warned in a public speech at the University of Hong Kong that “that system of rules and shared responsibility is now in danger of being torn apart. This would be an inexcusable, collective failure.”

Major players in global trade will consider possible countermeasures and strategies to moderate the medium- and long-terms impacts of Donald Trump’s trade protectionism. Amid the trade war, China, Japan, and South Korea are reviving the delayed agenda of East Asia integration. China, Japan and South Korea have so far failed to integrate due to their long-lasting and occasional political tensions. China and Japan’s relationship reached a new low in the last five years due to their maritime disputes in East China Sea. China and South Korea have been close friends most of the time but had a huge conflict over the South Korean deployment of THAAD, an American anti-ballistic missile defense system which was aimed at neutralizing the missile threat from North Korea, but which also undermined China’s security interests. Japan and South Korea have been recently troubled by their previous agreement to resolve the comfort women controversy.

Amid Trump’s trade protectionism, the three East Asian economic powers met again to discuss regional integration issues, as well as to accelerate their free trade agreement (FTA) negotiations. On March 23, the chief trade negotiators from the three countries met in Seoul and vowed that it served their common interests to conclude their FTA negotiations as soon as possible, as this is vital for the promotion of in-depth regional integration, and the achievement of investment liberalization and facilitation in East Asia. If the negotiations are successfully concluded, it is believed that the new China-Japan-South Korea FTA will be more advanced than the Regional Comprehensive Economic Partnership, another proposed regional FTA will cover the ten members of ASEAN and its six FTA partners — Australia, China, India, Japan, South Korea and New Zealand.

Despite the political hurdles between the three countries, the trilateral summit in May will possibly turn a new page in East Asian integration.

On April 15, Chinese Foreign Minister Wang Yi visited Tokyo to lay the groundwork for the trilateral summit between Chinese Premier Li Keqiang, South Korean President Moon Jae-in and Japanese Prime Minister Shinzo Abe, which will probably be held in May. During Wang’s meeting with his Japanese counterpart Tarō Kōno, both sides agreed to “go forward with mutual visits” by Abe and Xi, and they hoped that bilateral ties will be “brought back onto a normal track.”

Another important purpose of Wang’s visit was to resume the high-level economic dialogue with Japan, which took place on Monday April 16. Together with Wang, the Chinese Ministers of Commerce and Finance, the Japanese Ministers in charge of economic affairs, and other senior officials also attended the meeting. Beijing and Tokyo reiterated the importance of promoting regional integration in East Asia, and the necessity of accelerating the trilateral free trade negotiations. Both sides also agreed on bilateral cooperation on infrastructure building and third-country green investment under the masterplans of China’s “Belt and Road Initiative” and the Japan’s “Free and Open Indo-Pacific strategy.” The leaders also expressed their concerns over the rise of trade protectionism, and vowed to defend and honor “the free trade system centered on the World Trade Organization.” The statement was issued before Abe’s visit to the US on April 17, during which Abe is expected to discuss with President Trump the issue of the trade imbalance.

This high-level economic dialogue had been initiated by Chinese Premier Wen Jiabao and Abe during Wen’s visit to Japan in 2007. In the last meeting held in August 2010, six Japanese cabinet members and their Chinese counterparts signed seven agreements to promote the bilateral cooperation on climate change, transportation, education, rare species and forest protection, and food security. The dialogue was suspended due to the maritime dispute in the East China Sea.

Despite the political hurdles between the three countries, the trilateral summit in May will possibly turn a new page in East Asian integration. Economic cooperation will be surely a major focus during the summit, and the leaders are expected to reiterate their commitment to accelerate the FTA negotiations. Things may not go smoothly, but it is time for the three economic powers to integrate directly.

The China-Japan high-level dialogue and political rapprochement, and their commitment to regional integration, were publicized one day ahead of Abe’s visit to the US. This trip cannot be a pleasant one for Abe, because he might be pressured to mitigate the trade imbalance between Japan and the US. This explains why East Asian integration is back on the agenda. Beijing, Tokyo, and Seoul all want to hedge the risk of Trump’s trade protectionism. As such, Trump may take credit for rallying these three East Asian economic powers in a subtle way.

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