Round-table discussionExperts warn of 'Trump effect' hitting world trade system

March 05, 2017

Global trade rules and frameworks built by the international community over many years may be destroyed by the protectionist inclinations of U.S. President Donald Trump's administration, according to noted Japanese researchers. Their dire warning came at a recent open discussion organized by the not-for-profit, independent Japanese think tank, The Genron NPO.

History shows that past U.S. administrations sometimes took a protectionist line in trade policies, said Yoshiko Kojo, a professor at the University of Tokyo's Graduate School of Arts and Sciences. "The tendency is not unusual, but the fact that President Trump is not interested in multilateralism at all is a matter of concern," she said. Naoyuki Shinohara, a professor at the university's Policy Alternatives Research Institute, warned that the new president tends to think about trade issues with a zero-sum game-like approach.

President Trump makes light of the existing trade system, probably because he has not examined the global trade rules themselves, notably those under the World Trade Organization and the Trans-Pacific Partnership (TPP) initiative, said Yorizumi Watanabe, a professor at the Faculty of Policy Management of Keio University's Graduate School of Media and Governance. The president's policy aides should carefully study the related trade rules and make him understand that the United States can benefit from the existing trade system, he said. The three-way discussion was held Feb. 21 as part of events to pave the way for the Japanese think tank to inaugurate a new, private-sector debate framework, in which the world's opinion leaders will exchange views on global challenges.

2017-02-22-(37).jpgAccording to Genron NPO President Yasushi Kudo, who served as moderator at the discussion, the new forum, to be called the Tokyo Conference, will be convened in March and bring together think tank researchers from 10 countries, the Group of Seven major economies - Japan, the United States, Germany, France, Britain, Italy and Canada - plus India, Indonesia and Brazil. They will come up with proposals to be presented to the Japanese government and Italy, the chair of the G-7 leaders' meeting this year.
The three experts equally mentioned developments linked to globalization as reasons behind the changes seen in the situation in the United States, which has led the world's free-trade system in recent decades.

2017-02-22-(13).jpgAccording to Kojo, past U.S. governments, while taking control of the globalization trend, have provided supportive measures, when necessary, to people negatively affected by it, but as globalization has spread in financial services, it has become difficult for the government to fully take care of the affected people. When a country is to lead the world, it needs to have the ability and the will to do so, but today's America is losing not just the ability but also the will, following President Trump's election, she said. Shinohara, who formerly served as deputy managing director of the International Monetary Fund, said that jobs in the United States have been moved to other regions following the progress of globalization and as a result, "the middle class (in the United States) has been annihilated." President Trump is cleverly using people's fears that more U.S. jobs will go overseas, he said. U.S. economic growth slowed after the Lehman Brothers shock in 2008, and then, people's dissatisfaction grew over the fact that the pie, which can be provided to the affected people amid globalization, has become smaller, Shinohara said. After Lehman Brothers, tougher regulations were globally introduced for financial services, as instanced by rules under the Basel Capital Accord, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. This was a worldwide trend at that time, but President Trump has bitterly criticized these measures. This means that the president has a rather liberal attitude to global financial services while taking a protectionist stance toward the global trade system, and this is an "inconsistency," Shinohara said.

2017-02-22-(16).jpgWatanabe said that following progress in the division of labor as part of globalization, some poor countries became better off, but relative poverty grew in some rich developed countries. In developed countries, the focus of economic activity is shifting to manufacturing and the non-manufacturing sector, or the tertiary industry, from primary industries. When people hope to work in services, a higher education must be supplied to them, but there are an increasing number of people who cannot receive such an education in America, he said. The bottom line is the fact that the United States has failed to change its industrial structure despite changes in the economic and social environment surrounding its industry, Watanabe said. It is wrong to blame the free-trade system for the poor performance of American industry, he said.

Kudo, the Genron NPO president, asked the experts what must be considered in order to maintain the global free-trade system. In today's global trade system, various factors are at work in a complex manner, not just those related to tariffs but also rules for intellectual property and environmental protection, Watanabe noted. The current international trade regulations have become very difficult to understand, but serious discussions in Japan about the future of world trade in recent years have contributed to deepening understanding in Japan about pertinent issues both among people opposing and people in favor of freer trade.
Meanwhile, in the United States, only government officials have been involved in negotiations to formulate international trade rules, causing a sense of isolation among ordinary people, he said. Watanabe stressed the importance of each country creating opportunities for ordinary people to think about trade issues related to their life. He also said that China has become more aware in the past 10 or so years of the need to comply with international rules for intellectual property protection. Japan and other countries concerned should further try to persuade China to be standard-bearer for free, fair trade so that "China may be brought on to this side," he said.

2017-02-22-(87).jpgShinohara noted that there are unfavorable side effects to the free-trade system, too, among them greater income gaps. Impartiality and justice are points of view that must be considered from now on, he said, adding that the countries concerned should implement economic policies with such points in mind. Referring to the U.S. withdrawal from the TPP multilateral trade initiative in line with President Trump's "America First" policy, Watanabe called for effectuating the scheme with only 11 countries involved and without the United States. "The doors should be kept open so that it may be easier for the United States to come back if it changes its mind in future," he said. A proposed bilateral free-trade arrangement between Japan and the United States as an alternative to the TPP will be less meaningful to both countries because it will not supplement the dynamism of the production network in the Asia-Pacific region, he said.

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