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Exploring the New Order of Global Trade amid the U.S. Trade Policy Shift

After the U.S. President Donald Trump signed the memorandum to withdraw from the Trans-Pacific Partnership (TPP) agreement, the world’s largest economy is no longer taking the lead on multilateral trade and investment liberalization. In the meantime, the Brexit referendum results and the rise of the far-right parties in Europe reflected the risks of widespread anti-globalism and protectionism in the European continent. That said, on 22 Feb 2017, the World Trade Organization (WTO) successfully implemented its first multilateral trade deal since its establishment for 21 years - the Trade Facilitation Agreement (the U.S. had accepted the agreement in Jan 2015). It affirmed the commitment of most WTO members to a multilateral trading system. At present, the Regional Comprehensive Economic Partnership (RCEP), which mainly comprises Asian economies, is the only mega free trade agreement (FTA) with potential to be realized in the foreseeable future. The 16 RCEP members are pushing forward the RCEP negotiations based on the principles of pragmatic cooperation and mutual interest. The deal will drive further integration of the trading network in Asia, providing a catalyst for the world economy.

The U.S. Trade Policy Shift

On 1 March each year, the United States Trade Representative issues the Trade Policy Agenda and Annual Report, which outlines the Government’s Trade Policy Objectives and Priorities. Comparing the two reports in 2016 and 2017, a remarkable shift can be seen in the trade policy under the new government. In the 2016 report, it mentioned ‘leadership’ for a total of 21 times, highlighting that the U.S. leading position in the world economy would not only make America’s economy stronger but also unlock opportunities for the rest of the world. It reflected the U.S. ideology of having common interests with the world economy. However, the 2017 report barely mentioned the U.S. leadership in the world economy and even stated that no clear benefit was seen from the global trading system. In particular, it added that the U.S. has long been suffering from high levels of merchandise trade deficits. The Trump Administration thus called for a new approach in trade policy, in order to expand trade in a freer and fairer manner for all Americans.

The 2017 Trade Policy Agenda lists out three major principles under the new approach. First, the U.S. will focus on bilateral negotiations rather than multilateral negotiations. Replacing the TPP by pursing bilateral trade deals with the 11 TPP members was indeed the first signal sent by the Trump Administration in regard to the change in trade policy. President Trump had repeatedly stated that multilateral agreements could not ensure the interests of Americans, and he favored negotiating trade deals on a one-on-one basis, which could result in fair and best possible terms for the U.S. Prior to the U.S. withdrawal, the remaining 11 TPP members all expressed openness to revise the pact in return for the U.S. staying in the trade bloc. However, in the joint statement between the U.S. and Japan after the official visit by Prime Minister Shinzo Abe, President Trump explicitly stated that Japan noted the U.S. decision of withdrawal from TPP, and both nations would deepen their trade and investment relations on a bilateral framework. It clearly pointed out the U.S. position of not pursuing a multilateral framework.

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Content provided by Bank of China (Hong Kong)
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