America’s retreat from its role as global leader on trade will leave the commercial world “drifting” unless China steps up to the plate, the Asia Pacific head of Standard & Poor’s has warned.
Americans voted in a president who delivered on a pledge to remove the US from the Trans-Pacific Partnership, the trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States (until January 23 this year) and Vietnam.
Donald Trump’s rival in last year’s election, Hillary Clinton, also promised to scrap plans to join the largest regional trade accord in history.
The permanent loss of the US as a global leader would have troubling consequences for Asia’s many export-oriented economies. “One scenario — and a serious risk — is that we end up with leadership drift, with no one stepping in to replace America,” said Paul Gruenwald, chief Asia Pacific economist at S&P. “The danger is that we move to a more nationalistic system that retards global trade and widens inequality.”
With Europe missing in action and India still in its developmental phase, the spotlight has fallen on China to become the new de facto champion of the forces of free trade and globalisation.
China raises barriers
Many fear that the country, although it has benefited more from globalisation than any sovereign state in history, is neither ready nor willing to take charge. “China doesn’t want to lead,” said Xiang Songzuo, chief economist at Agricultural Bank of China.
“It’s not about being ready or not being ready. To be leader of the world, other countries have to want to follow you, and it isn’t clear to me that many countries want to do that. And China still acts according to its own needs. It doesn’t want to do things that are in other countries’ best interests.”
To some, China’s willingness, in the wake of Trump’s November election win, to promote itself as the chief global proponent of free trade, was also disingenuous. China protects a host of local industries, including steelmakers and banks, and imposes non-tariff barriers on products ranging from cooked food to car parts. Over the past year, it has tightened, not loosened, control over its capital account.
Chang Liu, chief China economist at London-based Capital Economics, said although China had been the “big beneficiary of free trade” over recent decades, it believed in free trade so long as it happens beyond its own borders. “But it’s shown no willingness to lower any of the barriers it deems important to protecting local companies. So in terms of free trade, its attitude is mostly rhetoric.”