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Protectionism threat – how serious is it?

Manu Bhaskaran
Manu Bhaskaran2/5/2018 08:00 AM GMT+08  • 9 min read
Protectionism threat – how serious is it?
SINGAPORE (Feb 5): US President Donald Trump used his State of the Union speech to reiterate his hard-line views on trade, vowing that the “era of economic surrender is over” and that his administration would “fix bad trade deals”. Only days befor
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SINGAPORE (Feb 5): US President Donald Trump used his State of the Union speech to reiterate his hard-line views on trade, vowing that the “era of economic surrender is over” and that his administration would “fix bad trade deals”. Only days before the speech, his administration had imposed tariffs on solar panels and washing machines, which directly hurt Chinese and South Korean producers as well as those producing components for those producers such as manufacturers in Malaysia. Over the past year, the Trump administration has also blocked the reappointment of judges to the appellate tribunal of the World Trade Organization dispute settlement body, a strategy that would severely compromise the WTO’s ability to act as a neutral arbiter of trade disputes. It has also pursued an uncompromising line in negotiations on both the North American Free Trade Area (Nafta) as well as the Korea-US FTA (Korus).

The problem is that this questioning of the benefits of free trade is not only confined to the US. Unfortunately, there is a growing nationalistic and inward-looking mood in many parts of the world. In India, officials are reported to be questioning the benefits of trade agreements that India has entered into, with many blaming the large expansion of India’s trade deficits on such agreements. In China, policymakers seem to be supporting a new economic model that emphasises the development of indigenous companies and home-grown technologies. As a result, both US and European business lobbies are growing vociferous in their complaints about China’s increasingly nationalistic policies.

Our view is that trade tensions will tend to worsen in the coming months, with China a major target. While other Asian exporting nations may not be a direct target, the China--centred supply chains involve many component producers from East and Southeast Asia. Thus, protectionism directed at China will have wider ramifications across Asia.

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