Interesting: Trump Risk Index: Are you safe?

Country exposure to policy changes expected under a Trump administration.

U.S. Trade Agreements and Asian Responses to Protectionism

The U.S. has Comprehensive Free Trade Agreements (FTAs) with 20 countries, though not with China or Vietnam. A notable recent FTA with Japan, effective from 2020, focuses on critical minerals for EV batteries. Reference: USTR Trade Agreements (https://ustr.gov/trade-agreements/free-trade-agreements)

Asian Countries' Reactions to U.S. Protectionism

With U.S. President-elect Donald Trump emphasizing protectionist trade policies, including tariffs of up to 20% on imports and 60% on Chinese goods, many Asian countries are pivoting to regional and bilateral trade agreements to foster economic collaboration without U.S. participation.

At the recent Asia-Pacific Economic Cooperation (APEC) forum in Peru, leaders emphasized deeper regional integration amidst rising geopolitical tensions and fraying supply chains.

Recent Developments:

China: Signed a stronger trade agreement with Peru.
Indonesia: Finalized a trade pact with Canada.
Singapore: PM Lawrence Wong stressed revitalizing the Free Trade Area of the Asia-Pacific (FTAAP), saying, "APEC is now more relevant than before."

Major Trade Agreements Without U.S.:

RCEP (Regional Comprehensive Economic Partnership):
- Includes 15 Asia-Pacific nations (e.g., China, Japan, South Korea, ASEAN).
- Covers ~30% of global GDP.
- Signed in 2020 after eight years of negotiations during the U.S.-China trade war.
CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership):
- Successor to the TPP after U.S. withdrawal in 2017.
- Includes 11 members (e.g., Canada, Australia, Vietnam).
- Trade among members increased by 5.5% (2018–2021).
- U.K. joins in December; China and Taiwan also seek membership.

Economists suggest Japan could further strengthen the CPTPP and collaborate with the EU to counterbalance U.S. protectionism.

Challenges and Opportunities

For China:

While China has significant trading partners, it faces challenges in fostering regional trade cooperation. Overcapacity in Chinese manufacturing results in high exports to countries like India and ASEAN, which hampers their export-driven industries. Economists suggest China should:

Boost domestic consumption.
Increase imports to support intra-regional trade.

For U.S.-Dependent Economies:

Countries like Singapore, Vietnam, Taiwan, and Hong Kong, with high trade-to-GDP ratios, are vulnerable to higher U.S. tariffs. Research shows:

The 2018 U.S.-China trade war cost China $35 billion and the U.S.$ 15 billion.
Replacing U.S. market access could take years, with Thailand needing 24 years and South Korea until 2038 to find alternatives.

Implications for Global Trade

Analysts argue that keeping global markets open is essential to mitigate risks from U.S. policies. Third markets, which have grown significantly this century, remain crucial for trade diversification.

The geopolitical shifts could benefit Japan and other nations that seek new trade partnerships, particularly as they aim to sidestep U.S. tariffs and explore alternative markets.

Author

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