Author: Editorial Board, ANU
Donald Trump’s presidency signalled a decisive US retreat from free and open trade and leadership of the multilateral trading system that had fostered unprecedented trade and economic growth for over 70 years.
Trump built his political claims to high office by drawing on a deep well of resentment among middle-class Americans who’d been denied the benefits of the gains from international trade by a national system for distributing them that was inadequate and broken. And he fingered the international trading system and foreigners, especially China, as the cause of America’s own problems and neglect and walked away from the Trans-Pacific Partnership trade agreement that the Obama administration had instigated.
By the end of Trump’s term, the initiation of trade war with China had ended in a rule-breaking and damaging managed trade deal and allies and partners were subject to trade imposts on grounds of national security. The appointment of members to the appellate body of the WTO, arbiter of the international trade rules that the United States had largely crafted, was stymied by US veto. The principles of international trade that still provide the confidence and trust on which global integration has been built, nowhere more so than in the Asia Pacific region, were under US attack and the rules being flouted by the world’s two largest economies.
Settling on a new, coherent trade strategy has not been a Biden administration policy priority. Policy attention has been dominated at home by recovery from the pandemic and the big infrastructure spend and abroad by the messy withdrawal from Afghanistan and security posture towards China.
US Trade Representative Katherine Tai’s slogan of a trade policy to serve America’s middle class is just that — a political slogan that has yet to gain any policy substance. Meanwhile, America’s middle class has dwindling income ripped out of its collective pocket by the tariffs that remain on Chinese imports, as both Tai and Commerce Secretary Gina Raimondo acknowledge that decoupling from the world’s largest trader is not a viable option.
The advent of the Biden administration held promise of a return to respect for international institutions, prominent among them the WTO. It was quick to remove the logjam around the appointment of its new Director General, Ngozi Okonjo-Iweala, and mend trade relations with Europe, albeit with total disregard for multilateral rules. But the US veto on appointments to the WTO Appellate Body is still in place, Biden too has eschewed the Trans-Pacific Partnership, now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and is negotiating with China within the framework of Trump’s Phase One trade deal that disrespects multilateral trade rules in favour of bilaterally managed trade.
In our lead article this week, Gary Hufbauer and Megan Hogan say that ‘like Trump, Biden has struggled to craft an effective approach to deal with China. Multiple WTO cases have prompted China to reform individual aspects of its trade regime, but there has been no action through the WTO that’s persuaded Beijing to alter foundational features — namely forced technology transfers and subsidisation of state-owned enterprises. Trade battles have not relaxed US fears over China’s military and technology ascent’. True, there’s an agenda for global trade system reform, but the United States shows no inclination to engage on it nor to frame any overarching strategy that would deal with its trade policy woes.
The alternative is a piecemeal, ad hoc approach to building coalitions that subsume trade interests under other issues. Having mended its squabble with Europe, Biden promised at the East Asia Summit last October that he would present an Indo-Pacific economic framework for engagement with Asia this coming year.
As Hufbauer and Hogan explain, ‘meaningful engagement in the region faces a number of challenges, from both inside and outside the administration … The consequence of presidential neglect was that rather than push a single framework, Secretary of State Antony Blinken, Raimondo, and Tai each supported different and somewhat competing angles on Indo-Pacific engagement’. Access to the US market served to attract partners to the Trans-Pacific Partnership. With tariff reductions off the table, the administration is considering other incentives, such as funding capacity building, infrastructure projects, and green financing. Everything seems to be in the mix except trade…
Policy failure with Italian characteristics?
Italy’s participation in China’s Belt and Road Initiative may end in 2024. The decision to join in 2019 led to political and economic costs that have not been offset by expected benefits.
Italy’s Withdrawal from the Belt and Road Initiative
Italy’s participation in the Belt and Road Initiative (BRI) may soon come to an end, as the country entered China’s initiative in March 2019. A Memorandum of Understanding (MoU) was signed in Rome by former Italian prime minister Giuseppe Conte and Chinese President Xi Jinping. Less than five years later, the whole BRI story risks becoming a major foreign policy failure for Italy.
Debating Italy’s Participation in the BRI
The MoU will be automatically extended in March 2024, unless terminated by either party at least three months in advance. As the deadline approaches, the government of current Prime Minister Giorgia Meloni is expected to announce its decision soon. In 2019, the Conte I government’s decision to sign the MoU was made amid a heated yet highly ambiguous political debate.
The Downside of Italy’s BRI Gamble
Italy’s gamble in joining the BRI has not paid off as expected. Critics have scrutinized Italy’s involvement in the BRI, and the COVID-19 pandemic has affected anticipated economic benefits. As a result, Italy has been unable to fully leverage the MoU and engage effectively with Chinese stakeholders, leading to a shift away from emphasizing its involvement in the BRI.
Australia’s troubled EU trade deal still second best
The proposed trade agreement between Australia and the EU is in trouble due to EU protectionism, particularly in agriculture. This offers lessons for both parties and poses a potential threat to the Asia-Pacific region’s trade diplomacy.
Trouble in the Australia-EU Preferential Trade Agreement
Author: Ken Heydon, LSE
After five years of intense negotiation, the proposed preferential trade agreement (PTA) between Australia and the European Union is in trouble. On 29 October 2023, talks were suspended, with little immediate prospect of resumption. This setback, plus other recent developments in EU preferential trade policy, offer some broad lessons — for both Australia and the region.
Issues and Challenges
The failed negotiation is, in part, a victim of current times. With liberal trade policy in retreat, government-fuelled industrial policy is on the rise, and, according to the Eurobarometer Poll of July 2022, the majority of Europeans now view protectionism positively. The immediate cause of breakdown in the talks was, unsurprisingly, agriculture. This is the sector that, given EU intransigence, was a key factor in the failure of the Doha Development Round of multilateral trade talks.
Implications and Lessons
Australia’s particular concerns during negotiations with Brussels arose from EU resistance to opening up its market to Australian beef and sheepmeat, and protective geographical indications that would restrict the labelling of Australian feta cheese and prosecco. As highlighted by the WTO Trade Policy Review of the EU, the number of products subject to EU ‘geographical indication protection’ continues to rise. Looking ahead, there are still some broad strategic factors that might favour a deal. For the European Union, this includes gaining secure access to Australia’s critical minerals, such as lithium and copper.
New US–China working groups bridging bilateral gaps
US-China economic and financial working groups established in September 2023 aim to stabilize relations and prevent economic decoupling, addressing trade imbalances and fostering dialogue between the world’s largest economic powers.
US–China Economic and Financial Working Groups
The establishment of the US–China economic and financial working groups in September 2023 marked a significant turning point in the often uneasy relations between Washington and Beijing. In the midst of increasing tensions due to great power rivalry, these working groups have the potential to promote greater stability between the world’s two largest economic superpowers.
Challenging the Notion of ‘Decoupling’
While ‘decoupling’ has become a popular term representing the United States and China’s efforts to separate their economies, the establishment of the working groups challenges this idea to a certain extent. Policymakers on both sides understand the risks associated with complete economic decoupling, as bilateral economic ties are characterized by intrinsic interdependence.
Promising Benefits and Potential Challenges
The working groups, supported by high-level officials from both countries, offer a structured channel for ongoing dialogue. They have the potential to promote trust, transparency, and direct communication while also addressing challenges such as structural trade imbalances and intense rivalry in high-tech competition.
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