Trade Wars and Asia

Abstract

The world’s two largest economies and trading nations are skirting around the brink of a trade war. This puts at risk the international trading system that underpins prosperity in the global economy. The US administration’s America First agenda has brought uncertainty, and the risks have intensified in President Donald Trump’s second year in office with the tariffs he slapped on steel and aluminium imports and the threat of large-scale protection aimed at China. The European Union, China and others have threatened to retaliate as the US measures are implemented. A managed trade deal between China and the United States currently looks a likely outcome. Although it might be better than a full blown trade war, it will involve measures outside of the rulesbased order. That would have significant negative spillovers to other countries, diverting trade and investment in ways that diminish global welfare and exacerbate political tensions. Nor will it reduce the United States’ trade deficit. More than any other region, Asia relies on open markets and confidence in the multilateral system for economic and political security. Adjusting to China’s rise was always going to be difficult to manage for the United States, its allies and the established order. But President Trump has raised the stakes and multiplied the risks. If Trump is intent on tearing up the existing global economic order, how might the rest of the world respond, preserve what works and fix what doesn’t work without major disruption? The essays in this issue of EAFQ bring together analysis from the region’s top thinkers on the evolution of, and changes in, the US–China relationship, the threat to the global order and what options exist for moving forward. The shift away from US leadership in trade, what needs to be done to rebuild the support for openness in America, Japan’s difficult position, the Brexit ordeal, and Asia’s response are all featured in this issue. The regular Asian Review section includes essays on Malaysia’s democracy and modernisation, Chinese governance and a deep dive into the US–China economic relationship.