Introduction

Since 2018, the United States and China have been embroiled in a trade war. The trade war stems from US President Donald Trump’s decision to impose tariffs on several products and commodities imported from China. In response to the policy, China also imposed tariffs on several products and commodities imported from the US. Research conducted by Chad P. Bown (2022) from the Peterson Institute forInternational Economics shows that as of July 2018, the average US tariff on imports from China was still 3.8%. However, tariffs on imports from China gradually increased until they peaked at 21% in September 2019 and then dropped to 19.3% in February 2020.

Meanwhile, on the Chinese side, in July 2018, the average tariff on imports from the US was at 7.8% and then gradually increased to 21.8% in September 2019. As of February 2020, Chinese tariffs on imports from the US decreased to 21.3% and reached a low of 21.2% on July 2020. Furthermore, based on the impact of tariffs on the percentage of trade, around 66.4% of US imports from China and 58.3% of Chinese imports from the US in June 2022 are still affected by tariffs set against each other.

There are efforts between the US and China to defuse the trade war through the Phase One agreement, which was agreed upon in December 2019. The two countries agreed on structural reforms to China’s economic and trade regime, particularly in intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange. In the deal, China also committed to increasing the imports of goods and services from the US. Furthermore, a dispute resolution system was established with immediate and effective implementation and enforcement. Finally, the US agreed to modify Section 301 of the Trade Act of 1974. Despite these efforts, as shown from the data in the previous paragraph, the tariffs that the US and China imposed on each other remained relatively high.

The US put several Chinese companies on the Entity List as the trade war escalated between the two countries. The US Bureau of Industry and Security (2022) reported on August 23rd, 2022, that about 600 Chinese companies were already included on the list, with 110 companies included during President Joe Biden’s tenure. In practice, companies on the Entity List will have restrictions on access to commodities, software, and technology from the US. However, US entities may export, re-export, and transfer such matters to companies on the Entity List with a license from the US Bureau of Industry and Security.

The conflict between the US and China is not limited to political economy issues but also security politics. China’s claim to much of the South China Sea, known as the nine-dashed line, is contrary to the principles of the US freedom of navigation. This situation leads to freedom of navigation operations (FONOPS) by the US Navy in those waters that China regards as part of its territories as opposed to its claims. The existence of Taiwan also creates issues between the two countries. Although since 1972, it has recognized the communists in Beijing as the sole representative of China, the US maintains its ties with nationalists in Taipei and ensures their independence from Beijing. China’s growing economic and military power over the past two decades allows the country to become increasingly assertive of Taiwan. This raises tensions with the US as Taiwan’s ally and security guarantor.

The conflict between the US and China prompted the two countries to reduce their dependence on each other. US manufacturing imports from China have decreased, while Asian countries categorized as low-cost countries, have increased. At the same time, the issue of reshoring US companies’ operations in China arose. A survey conducted by A.T. Kearney (2022) found that about 47% of executives of US manufacturing companies operating in China have moved part of their operations back to the US in the past three years. 29% said they would restore parts of their operations in the next three years, and 16%said they had considered reshoring but are yet to make a decision. In the survey, US company executives also outlined that their options also include Mexico, Canada, and Central American countries (nearshoring), not limited to reshoring to the US. This decision coincides with the trend of automation by US companies; instead of looking for cheap labor, they are replacing them with robots. The process creates challenges for countries that host part of US companies’ operations characterized by the labor-intensive and technology-laden process.

From the Chinese side, the disruption caused by the conflict with the US encourages them to become more economically self-sufficient. Such efforts to achieve self-sufficiency are made through the dual circulation model, which includes changing the growth model from export-based to domestic consumption and reducing dependence on imports. Concerning the second element, according to the Economist Intelligence Unit (2020), China focuses on three sectors. First, technology with a priority towards semiconductors. China provides fiscal incentives and subsidies, and encourages cooperation between industries and universities to reduce dependence on US semiconductor companies or companies from other countries that use US technology. China also provides fiscal incentives and subsidies, and encourages cooperation between industries and universities. The second sector is energy. China does not rely on the US or its allies for energy supplies, however, shipping oil and gas by sea is vulnerable to a blockade or interception. The threat of a blockade prompted China to increase its renewable energy sector investment. The third sector is food. China’s agricultural sector is labor-intensive, but they experience labor shortage and are dependent on imports of seed and technology. This limitation prompted a policy of agriculture modernization from labor-intensive to technology-intensive.

Alfin Febrian Basundorois a graduate student at the Strategic and Defence Studies Centre, Australian National University, Canberra, Australia.

Muhammad Irsyad Abraris a graduate student at the Department of International Relations, Universitas Gadjah Mada (UGM), Yogyakarta, Indonesia.

Trystantois an undergraduate student of international relations at Universitas Gadjah Mada (UGM), Yogyakarta, Indonesia.

To read the abstract as it was originally posted by the Journal of World Trade Studies, click here.

To read the full research article, click here.

The post The Positive Impact of US-China Trade War on Global South’s Position in the Global Value Chain appeared first on WITA.

For Southeast Asia, growth prospects look comparatively better against the global backdrop at 4.6% as forecast by the Asian Development Bank (ADB). This was a slight downgrade from earlier predictions, due to lower export growth and a deceleration of industrial activity. Regional growth has been anchored by domestic demand and services, and the recovery of tourism activities. The need to fully leverage the region’s growth momentum amidst economic uncertainty and rising geopolitical risks was aptly highlighted by Indonesia’s ASEAN Chairmanship theme, ASEAN Matters: Epicentrum of Growth. The conclusion of the 43rd ASEAN Summit and Related Summits in September was once again a testament of Indonesia’s leadership, with over 90 documents issued and concrete deliverables announced throughout the three-day meetings that include several dialogue partners. Now that it has passed the baton to Laos, our Analysis contributors assess Indonesia’s Chairmanship and whether it has lived up to expectations.

Although it was unable to move the needle on the Myanmar crisis and the South China Sea, Jakarta managed to reaffirm ASEAN Leaders’ commitment to strengthen economic resilience. Among the Summit’s key economic outcomes were the launch of the Digital Economic Framework Agreement (DEFA) negotiations and the adoption of the ASEAN Blue Economy Framework. These outcomes embrace the region’s new growth drivers in an inclusive and sustainable way. With this in mind, this issue casts a Spotlight on the region’s many different emerging economic drivers. Our contributors look at potential growth engines in the region, from the quest for an ASEAN single QR payments network to the rise of unicorns, and the role of innovation in advancing digital health. Looking at external partners, regional experts examine how the Indo-Pacific Economic Framework for Prosperity (IPEF), the European Green Deal, and the Korea-ASEAN Solidarity Initiative can help unlock new economic and development pathways.

Beyond the economy, the region is facing another momentous development with several Southeast Asian countries undergoing leadership transitions. To help make sense of this changing political landscape and what it means for regional cooperation, ASEANFocus convened a roundtable featuring views from experts on seven ASEAN countries, namely Cambodia, Indonesia, Malaysia, the Philippines, Thailand, Singapore, and Vietnam.

To read the full report, click here.

The post Emerging Economic Drivers in ASEAN appeared first on WITA.

There are six sections in the survey. Section I covers the profile of the respondents by nationality, affiliation and age. Section II deals with questions on the regional outlook and viewpoints on international affairs in the past year. Section III covers regional influence and leadership of major and middle powers. Section IV deals with ASEAN’s options in the changing regional politicalsecurity architecture. Section V measures perceptions of trust among Southeast Asians towards five countries – China, US, Japan, the European Union and India. Section VI gauges levels of soft power in the region based on travel and tertiary education choices. The questions and results have been reorganised for logical flow and optimal reporting. The figures in this report have been rounded up or down to the nearest one decimal point.

To access the full report, click here.

The post The State of Southeast Asia 2023: Survey Report appeared first on WITA.

1. INTRODUCTION

The decade from 1985 to 1995 was a period of dramatic trade policy reform, particularly by developing countries. Many of them shed import substitution policies that had been in place since the 1950s and embraced exchange rate and trade reforms that opened their economies to the world (Dean, Desai, and Reidel 1994; Irwin 2022). In doing so, previously closed economies such as China and India became open to world trade and investment, and other emerging markets in Latin America, Asia, and Africa reduced their trade barriers and increased their participation in global trade. These policy changes reshaped the world economy, enabled the emergence of global supply chains, and produced the high level of interdependence that we see today.

Most countries opened their economies by performing the trade policy threestep: (1) devaluing their currencies and establishing competitive exchange rates, (2) abolishing foreign exchange controls and converting quantitative import restrictions into tariffs, and (3) gradually reducing the dispersion and level of those tariffs. In most cases, these reforms were undertaken unilaterally, often in the midst of an economic crisis. The lessons of experience, such as the success that Taiwan and Korea enjoyed after opening their economies in the 1960s, along with changing ideas about economic policy, contributed to the decision to reform their trade policies (Krueger 1997).

The World Bank, the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT)—then the World Trade Organization (WTO) after 1995—supported and encouraged the reform efforts. These institutions play an influential role in shaping international economic policy and their charters gave them a common purpose in promoting world trade.1 Although these organizations may not have been the driving force behind the reform efforts, what impact did they have in promoting the trade reforms of the 1980s and 1990s?2

Evaluating the contribution of these institutions to trade reform in developing countries is challenging because they approached the goal of expanding trade in very different ways. The GATT established trade rules and facilitated multilateral negotiations to reduce tariff and nontariff barriers to trade. The World Bank made loans to countries conditional on their making changes to their trade policies. The IMF sought “exchange rate stability” to help “in the elimination of foreign exchange restrictions which hamper the growth of world trade.” The institutions also differed in their ability to influence a country’s policies. The GATT/WTO was the weakest of the three in having virtually no leverage over sovereign governments. The World Bank and IMF had financial resources that they could use to win compliance with the policies that they deemed desirable.

Empirical assessments of the impact of these multilateral institutions on government policies and economic outcomes are plagued with difficulties. Studies based on observational data suffer from sample selection problems: the countries that choose to join the GATT/WTO, accept a World Bank loan, or enter into an IMF program are not randomly selected. These institutions dealt with different countries at different times and in different ways. The degree of compliance with loan conditionality is hard to observe. And it is not possible to know the counterfactual of whether a country’s policies would have changed even in the absence of those actions.

That said, it is possible to reach some tentative if impressionistic judgments, perhaps even surprising ones, about the contribution of these institutions to the trade reform process. One might suspect that the GATT/WTO, which of the three institutions focuses most directly on trade, had the biggest impact on developing-country policies, but on closer examination its impact was limited. The World Bank provided billions of dollars in trade policy loans, but this may not have had a decisive influence on a country’s decision to undertake trade reforms. Of the three, the IMF’s role in promoting trade reform may be the most underrated. The IMF focused more on stabilization and macroeconomic stability and yet it provided critical ingredients to trade reforms by encouraging countries to devalue overvalued currencies and start the process of eliminating exchange rate controls and import restrictions.

Douglas A. Irwin is a nonresident senior fellow at the Peterson Institute for International Economics since February 2018, is the John French Professor of Economics at Dartmouth College.

To read the full working paper, please click here. 

The post The World Bank, the IMF, and the GATT/WTO: Which Institution Most Supported Trade Reform in Developing Economies? appeared first on WITA.