Asia First vs America First: Why America needs Asia to be Great Again?

12/06/2019

Trade war. Due to make America great again, Mr. Trump needs Asia. But now, after US stepback it’s not clear what Washington’s role in Asia will be in the decades ahead

 

A great America needs a great Asia. In the last few months, Chinese government announced that will accelerate its market opening to more American high-tech goods and make greater efforts to protect foreign intellectual property. The news were  welcomed by US based firms, the stock market, and global trade as a whole.

Thus the question,  why America could not become great again without Asia? The answer is pretty clear: nowadays Asia is not just rising—it is also decoupling from the US.

Here are just a few metrics that indicate growing Asian confidence. First, Asian countries generally have lower debt, higher reserves, and manage currencies through trade-weighted baskets rather than US dollar pegs. Second, Tokyo and Beijing have become the largest international creditors; then initiatives such as  Regional Comprehensive Economic Partnership, the Belt and Road Initiative, and the Asian Infrastructure Investment Bank let Asian central banks to boosted the liquidity of currency-swap agreements.

 

©123rf. Why Trump’s ‘get tough on China’ policy is counterproductive? Economists remind White House that China is not Mexico or Canada.

 

Asia, not US, is becoming great again. Analyzing data, with five billion people—more than the rest of the world combined— Asia is leading worldwide trade, and now, after Washington’s step back these people are looking more toward each other than to Europe or North America.

According to Japanese Ministry of Finance, $4.5 trillion annually traded in the Northeast Asian triangular among China, Japan, and South Korea, and trade within Asia represents more than 60% of total Asian trade. Asia today is thus becoming what Europe and North America already are: a regional system in which members have more to do with each other than with states from other regions.

 

©123rf. Akihabara, Tokyo. If order to achieve outcomes, Washington needs allies, such as Japan. But Tokyo already shown reticency about US trade policy.

 

The Obama administration catched the great opportunities and the Trans-Pacific Partnership (TPP) trade agreement, was the attempt to open more Asian markets to American goods. But with the Trump administration pulling the US out of the TPP – alienating its closest Asian allies such as Japan and South Korea with other tariffs – it’s not clear what Washington’s role in Asia will be in the decades ahead. And actually the SEA countries such as Vietnam or Indonesia are the winners in this trade war.

 

Donald Trump trade team already put in act new sanctions against China, making inroads into the belly of the China trade beast. Anyway, the naive and protectionist american administration is wrong on different counts.

 

First, and should be the most obvious, is how White House is underestimating Chinese traditional determination and temperament.  As Harry G. Broadman said, “ the Chinese are nothing if they are not a patient bunch”. Looking back to Chinese history, they have been methodically designed a the long-term programs,  and this is different from many other parts of the world, where “short-termism and instant gratification are a way of life”.

Moreover, concerning other Asian countries, the tariff escalation between the US and China has convinced Asians that they cannot rely on the US as a risk-free supplier of critical goods. The more White House shouts its “America First” campaign, the more Asians are wisely hedging against excessive dependence on the US market. They are doing this by increasing trade with each other, which is precisely what China, Japan, and South Korea agreed to last autumn.  

 

Today Beijing imports nearly 70% of its hi-tech goods from Japan, South Korea, Taiwan, Singapore, and Europe. 

 

Any results? From America first to America alone, and maybe weak. Rising trade tensions between Washington and the rest of the world could cost the global economy $430 billion , with America “especially vulnerable”. China has decreased its dependency on US suppliers, but how? The lesson Chinese firms have taken away from trade turmoils is that they should substitute American hi-tech imports with those from nearer Asian trading partners, with whom they already trade more and have more leverage.

Today Beijing imports nearly 70% of its hi-tech goods from Japan, South Korea, Taiwan, Singapore, and Europe. Trade war main goal was try to isolate China, but from Canada to Latin America, from Europe to Japan, everyone will do their best to capture America’s market share in China and Asia more broadly.

 

©123rf. Wall Street. American experts, finance in primis, are worried about US-China trade war escalation will affect US economy too.

Then, it’s well known that tariffs hurt US consumers. From East coast to West coast, consumers and producers associations asked for a better dialogue between US administration and China. This, already mined Trump consensus. At the same time, tariffs inflict pain on firms located in the U.S. that use Chinese imports as inputs in their production process to make finalized products for sale. America First is not working for America. Retailers and consumers are facing raising prices too.

America’s manufacturing and agricultural sectors are going to feel the pain most acutely, for reasons that pre-date the trade war but will accelerate the longer it persists. China’s soybean importers now favor Brazil and Argentina, leaving Trump to spend taxpayer money bailing out American farmers. But what is amazing – and it’s the power of globalization ignored by Washington – is how Argentina is buying  American soybeans and ship them onward to China in order to meet China’s massive demand.

 

Then, it’s well known that tariffs hurt US consumers. From East coast to West coast, consumers and producers associations asked for a better dialogue between US administration and China.

 

As NYT pointed out in May, “Are Trump’s Tariffs Bolstering the U.S. Economy? Nope”. President Trump says that his protectionist trade policies have accelerated economic growth, but little evidence supports that claim. More important, Trump’s tariffs are hurting the stores where the poorest Americans shop. In the case of tariffs, while stores might try to buy domestically where possible and accept a small hit to margins, prices generally have to rise.

If retailers do it right, customers barely notice the impact, or not enough to massively affect spending. This is the reality for Dollar Tree, the operator of around 15,000 dollar stores, which this morning (March 6) outlined some of the difficulties produced by trade tariffs imposed by US president Donald Trump.

 

©123rf. China will not abandon hopes of technological upgrading. Following “Made in China 2025” program, today PRC is leader in robotics and atomization.

 

The company reported a $2.3 billion loss and announced its intention to shutter some 390 underperforming US stores of the Family Dollar chain, which it also owns. Mr. Trump maybe forget that to succeed globally, one has to manufacture and sell globally.

This is especially true given America’s aging demographics, weak infrastructure investment, and saturated markets. American market is not big enough, that’s why most Fortune 500 American companies as much as half or even more of their global revenue from abroad. As Apple loses market share in Asia to local competitors, its market cap is feeling the pinch then American manufacturing will continue to decline.  “America first” sounds such a great idea, except when it means “America alone.”

 

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