Economy
Changing Tides in
International Trade
BY VICTOR ANDRES MANHIT
Although trade has played an
important role in advancing economic
growth, it has since lost its dynamism.
Asian economies, however, have
continued to liberalise its markets.
Asia will now serve as the backbone of
stability amidst the growing clamour
for protectionism around the globe.
T
he past year has been marked
by key events affirming the
growing prevalence of populism.
22 The World Financial Review March - April 2017
In June 2016, Britain voted to leave
the European Union, providing the
momentum for populist movements
around the globe. A few months
later, Donald Trump was catapulted
to the Presidency on an America
First campaign. Although trade has
played an important role in advancing
economic growth, it has since lost its
dynamism. Asian economies, however,
have sung a different tune. While the
rising backlash against globalisation
have spurred protectionist policies in
the West, emerging powers in Asia have
continued to liberalise its markets. This
marks the end of a Western-led trade.
The Global Trade Disorder
Trade literature is dominated by studies
showing how lower trade barriers
have helped improve productivity and
growth. Two decades after Bretton
Woods, tariffs have fallen below 5%
and world trade has outpaced economic
growth by 3 percentage points.
Proponents for freer trade argue that
restricting the flow of goods limits the
range of choices available, adversely
affecting consumers and industries.
During global recessions, global trade
typically stalls for a period of time.
However, years after the 2008 finan-
cial crisis, growth in world trade has
still remained flat, marking the longest
period of postwar trade stagnation.
The World Trade Organization (WTO)
has forecasted trade to grow at 1.8%
to 3.1% in 2017, down from its initial
forecast of 3.6%. The downward revision was attrib-
uted to the slower recovery in merchandise trade
volumes. Meanwhile, global GDP growth is expected
to recover to 3.4% this year from 3.1% in 2016. On
average, trade has grown 1.5 times faster than GDP,
but this ratio has dipped below 1.0 in recent years.
In an atmosphere of skepticism towards trade liber-
alisation, reaching the pre-crisis average global trade
growth of 6% is unlikely. A report by the Peterson
Institute for International Economics (PIIE) noted
that following the General Agreement on Tariffs and
Trade (GATT) talks in 1947, reduction in trade barriers
have lapsed over longer time periods, partly due to
developing countries refusal to lower trade barriers
even further to protect their local industries. The stand-
still in multilateral trade negotiations has encouraged
countries to turn to plurilateral negotiations instead.
However, these have not led to significant progress in
goods and services liberalisation.
The 2016 World Economic Outlook diagnoses that
trade growth has slowed primarily because of weaker
economic activity. The report adds that the slower pace
of trade liberalisation and a surge in protectionist poli-
cies have also dampened trade growth. The slowdown
of global trade amidst growing protectionist senti-
ments is particularly alarming. Despite the supposed
merits of trade, its benefits have not been inclusive.
In the aftermath of the Great Depression in the
1930s, the US raised its import tariffs, only to face
retaliation from other countries. This only worsened
the recession and slashed more than half of global
trade. Although nowhere near the protectionist meas-
ures imposed decades ago, todays Western leaders are
treading on a dangerous route by introducing restric-
tive trade measures. In Asia, increasing protectionism
poses a huge threat to its trade growth. The number of
antidumping cases filed against the regions exporters
has risen by over 50% in the last 5 years. Protectionism
can harm smaller countries particularly those with
export-oriented economies who have limited
resources to cushion against external shocks.
There are growing calls for a more moderate form of globalisation, arguing
that todays volatile politics is partly rooted in excessive globalisation. Dani
Rodrik, a Harvard economist, asserts that democracy, national determination,
and economic globalisation cannot be pursued simultaneously.
A Rethink in the Rules of Global Trade?
The rise of populism is perhaps a testament
that the current system is no longer working.
There are growing calls for a more moderate
form of globalisation, arguing that todays volatile
politics is partly rooted in excessive globalisation.
Dani Rodrik, a Harvard economist, asserts that
democracy, national determination, and economic
globalisation cannot be pursued simultaneously.
Countries who have experienced the greatest
growth never fully embraced the free-market ideology
imposed by the US and other multilateral institutions.
Citing China, South Korea and Japan as examples,
Rodrik noted how these countries have engaged
with the global market, while protecting its domestic
industries. By enforcing import barriers, nascent
industries were given enough room to develop its
own capacities. By controlling capital flows and
manipulating currencies, local firms gained an edge
over their foreign competitors.
However, this vision might be better suited for
smaller countries trying to gain economic traction.
It would be catastrophic for advanced economies
to impose the same measures. Instead of reverting
back to protectionist policies, larger countries should
implement strategies to ensure that trades benefit is
more inclusive, such as strengthening social safety
nets to help out those who have lost out on trade.
Shift in Trade Patterns
The political climate in Western countries have
made it impossible to push for more trade
liberalisation. In contrast, Asian economies tell a
different narrative. In the Philippines, President
Duterte, who amassed widespread support for
his anti-elite stance, has so far maintained his
predecessors liberal macroeconomic policies. The
Asian Development Bank (ADB) reports that
although trade growth in the region has decelerated
due to slower global growth, intraregional trade
continued to strengthen.
www.worldfinancialreview.com 23
Economy
Xi Jinping, the first Chinese leader participating in
the World Economic Forum, delivered a speech in
defense of globalisation. He echoed a vision typically
espoused by Western leaders, remarking that, We
should adapt to and guide economic globalization,
cushion its negative impacts and deliver its benefits
for all countries. He cautioned that no one will
With the US emerge victorious in a trade war. This is a stark
retreating from contrast to the anti-trade rhetoric embraced by
the global stage, the new US government. Historically, America
China looks has championed trade liberalisation, encouraging
poised to fill in
developing countries to open their economies and
the leadership
vacuum. reduce trade barriers. It has since reversed its tone
under the Trump administration.
In his first week in office, Trump has issued two
trade-focused Executive Orders in fulfillment of
his campaign promise. He has withdrawn his coun-
trys involvement in the Trans-Pacific Partnership
(TPP), ending an era of multilateral trade deals
that have been a hallmark of globalisation, and has
also sought a renegotiation of the North American
Free Trade Agreement (NAFTA). To add salt to the
Trump withdraws US wound, he threatened to impose tariffs on goods
from Trans-Pacific produced in Mexico and China. Should Trump
Partnership deal.
pursue border taxes, global supply chains will be
Photo Courtesy of
@realDonaldTrump disrupted and trade wars will ensue as affected
on Twitter countries will most likely retaliate. These policies
24 The World Financial Review March - April 2017
are unsound and would undermine trade reforms
implemented over the past decades.
With the US retreating from the global stage, China
looks poised to fill in the leadership vacuum. The
TPPs demise will allow China to expand its economic
clout in Asia through the Regional Comprehensive
Economic Partnership (RCEP). Traditional American
allies in the region have already hedged towards Beijing.
The Philippines, for instance, has reoriented its foreign
policy, setting aside its tussle with China over the West
Philippine Sea in favor of stronger economic ties.
However, for China to become a credible leader
in global trade, it should be willing to open its
markets further and abide by international trade
standards. As it stands, it has stalled from imple-
menting significant reforms after its accession to
the WTO in 2001. Its regulatory environment is
unpredictable, transparency challenges unresolved,
and barriers to its services markets remain in place.
China itself is also one of the main targets of
protectionist policies. Although China has shown
geopolitical assertiveness, it faces numerous
constraints in assuming global leadership. For
now, it seems unlikely that a dependable leader will
take the helm in shaping the rules of the global
economy. What is clear, however, is that Asia will
now serve as the backbone of stability amidst the
growing clamor for protectionism.
Featured image: President Rodrigo Roa Duterte listens to
Trade and Industry Secretary Ramon Lopez as he discusses
matters during the courtesy call of Peoples Republic of China
Minister of Commerce Zhong Shan to the President in
Malacaan Palace on March 7, 2017.
Photo Courtesy: Rolando Mailo/Presidential Photo
Professor Victor Andres Dindo
C. Manhit is the Founder and
Managing Director of the Stratbase
Group and President of its policy
think-tank, the Albert del Rosario
Institute for Strategic and International Studies
(ADRi). He also serves as Managing Director for
BowerGroupAsia (BGA) in the Philippines.