Are Regional Trade Blocs The Response To Trump’s Global Disruption?

Trump’s trade policy stance is erratic, destructive, and undermines the values and principles of a rule-based global trading system that contributed to global growth, prosperity, and security. 

Without decoding Trump’s worldview, responding to his idiosyncratic trade policy stance is challenging. For a long time, the US has been targeting China for its non-market policies that undermine a level playing field for American companies in global trade.

Strategic Ambition To Preserve US's Global Hegemony

It is important to acknowledge that the US’s hostile policy stance against China is not only about trade, but also about its strategic ambition to preserve its global hegemony in key sectors like AI, EVs, semiconductors, and intellectual property rights (IPR). 

Today, America is trying to extend its China-centric policies to its key trading partners through bilateral trade agreements. These policies will limit the ability of developing countries to pursue catch-up in strategic sectors such as semiconductors, digital trade, and critical minerals. 

This is manifested in the recently concluded US-Indonesia trade agreement, which contains many provisions that limit the ability of Indonesian firms to move up the value chain in knowledge-intensive sectors.

For example, Indonesia has agreed to address the IPR-related concerns highlighted in the USTR Special 301 report. This will require Indonesia to overhaul its legal and regulatory frameworks related to copyright law, patent laws, and rules related to geographical indications.

Rewriting International Trade Rules

Reflecting on Trump’s arbitrary and imperialistic approach to bilateral trade deals, it is palpable that the US is leveraging its market power to secure trade deals that allow it to rewrite the rules of international trade. However, it is difficult to ascertain how these trade deals will shape the legal rules of the global trading system. 

The absence of a coherent approach in bilateral trade agreements demonstrates that the United States has lost its trust in the rule-based global trade. This strand of argument has its own inner rationale for US policymakers. They are of the view that the relative decline of the US in the world economy has reduced gains in maintaining the rule-based global economic system vis-à-vis the cost of sustaining it in a multipolar world.

The United States’ decision to withdraw from multilateralism presents significant challenges for developing economies, particularly in Asia. It is a well-established fact that most Asian economies have greatly benefited from export-led development, with the US being one of their largest export markets. Singapore, Taiwan, South Korea, Japan, Hong Kong, and Vietnam were the key beneficiaries of the US-led globalisation of trade. 

With increased uncertainty, trade protectionism, and the rise of geopolitical trade blocs, developing countries have embraced regionalism as a panacea. However, the central question is whether the existing regional trade agreements and blocs are adequately deep and institutionalised to offset market losses stemming from the United States-led global trade disruptions. 

Rise Of Regional Trade Blocs

For nearly three decades, regional trading blocs have been instrumental in fostering economic growth, promoting trade and investment flows, and deepening economic interdependence. Despite their remarkable success, these agreements still lack cohesiveness and are shallow in terms of coverage, depth, and scope.

Ergo, without further advancements, they are unlikely to generate new trade and investment flows to mitigate losses due to the erosion of market access in the US. Therefore, developing and low-income countries need to explore possible options to deepen their regional trading arrangements. 

The Asia-Pacific region has 338 trade agreements, comprising bilateral, regional, and interim trade agreements. Most of these trading arrangements have overlapping provisions and often compete with each other. The extent of overlapping provisions creates a policy dilemma for traders in choosing a trade agreement that is most appropriate for their business transactions. 

The plethora of overlapping bilateral, regional, and small group trade agreements is also characterised by a different combination of rules of origin and other associated stipulations. This not only increases the complexity of business transactions but also imposes additional costs on traders.

Addressing issues related to overlapping provisions, simplification of rules, harmonisation of technical regulations, and compatible regulations can significantly lower trading costs, thereby creating new business opportunities for traders in the Asia-Pacific region. This will allow countries to reduce the potential adverse effects of US-induced global trade turbulence.

CPTPP: A Viable Alternative

Large economies such as India, the EU, Canada, Brazil, and South Africa should consider joining mega regional trading blocs such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Regional Comprehensive Economic Partnership Agreement (RCEP), and the Association of Southeast Asian Nations (ASEAN), which have made steady progress in easing the cost of trading among members.

Among the three regional groupings, the CPTPP presents a more viable option for membership, as it has a diverse range of approaches in different regulatory areas beyond tariffs. 

Furthermore, it is not overshadowed by the geopolitical and geo-economic dominance of China or the US. By joining these mega-regional blocs, countries can deepen their trade and investment ties, thereby fostering new supply chains. This will help them minimise the potential deleterious effects of Trump-led global trade disruptions.

A large trading bloc (CPTPP) that includes India, Canada, the EU, Brazil, and South Africa, will also signal a unified global response to Trump’s policies. Such a trading bloc will contribute to the development of a new global trade order. 

(The writer is an Associate Professor, Jindal School of Liberal Arts and Humanities, O P Jindal Global University, Sonipat. Views are personal)