[EAI Working Paper] Great Power Competition and Asia’s Economic Architecture: An Agenda for US-ROK Cooperation

f2e34dd1a320d063f2e34dd1a320d063f2e34dd1a320d063
.a_wrap {font-size:16px; font-family:Nanum Gothic, Sans-serif, Arial; line-height:24px;}

Editor's Note

On November 13, 2020, the East Asia Institute (EAI) and the Brookings Institution jointly held the second online seminar in the series titled "Prospects for U.S.-South Korea Cooperation in an Era of U.S.-China Strategic Competition." In session 2, focusing on economy, energy, and environment, Mireya Solís argued that economic security should not be equated with national security, as the latter could be used as a pretext to unilaterally control the economy. She also stated that great powers should refrain from engaging in export controls, tightening foreign direct investment (FDI) screening mechanisms, and pursuing cyber-security rules, citing concerns about the possibility of coercive economic diplomacy. The author further pointed out that the Biden Administration is expected to place greater emphasis on working with like-minded countries, which could be more effective in efforts to avoid over-restrictiveness and establish best standards for export controls. At the same time, the U.S. could regain its credibility through confidence-building measures, such as tightening its own rules on Section 232 tariffs to ensure they are only authorized when genuine security threats arise. The U.S. should also articulate policy measures that target specific behaviors or security risks rather than being solely directed against China.

Quotes from the Paper

The United States and China are locked in a dynamic of strategic competition across a wide array of domains covering the military, economy, and technology. Increasingly, the contest is acquiring overtones of system-to-system competition, in what is frequently depicted as a zero-sum contest between open and authoritarian societies. Economic interdependence could very well become a casualty of intensified U.S.-China rivalry. Given the high degree of economic integration between the two largest economies in the world, wholesale decoupling would entail prohibitive costs, but there are also questions as to whether China and the United States have the political will and wherewithal to execute a more limited detangling of their economies (with a likely focus on emerging technologies).

An emerging regional trade architecture sans the United States

At the most fundamental level, the regional architecture defines membership and participation. The overlay of regional institutions and inter-state agreements determines which nations will benefit from preferential market access and have a voice in shaping the rules governing cross-border trade and investment flows. The benefits extend beyond increased economic competitiveness and gains from trade to include a foreign policy dividend as well. Insertion into the regional architecture signals long-term commitment, enables the dissemination of shared standards and norms, and confirms the shared intent to deepen ties among members. Importantly, the regional economic architecture in the Asia-Pacific has not been defined in exclusive terms, setting aside rival economic blocs. On the contrary, the regional fabric is multilayered with overlapping memberships and different levels of policy coordination.

Taking stock of “America First” trade policy

With his views of international trade as a zero-sum contest and the trade deficit as an adequate tally for success or failure, President Trump promised a redo of American trade policy. The "America First" trade policy rests on a profound skepticism of the multilateral trading system, a preference for bilateral talks that award the United States greater negotiation leverage, and unbridled unilateralism relying on tariffs and export controls as main tools of foreign economic policy. As American views on China have hardened, the Trump administration is not alone in its belief that the World Trade Organization (WTO) is incapable of controlling its unfair trading practices. Likewise, other U.S. administrations have been critical of the WTO Appellate Body for overstepping its bounds through its rulings. However, the Trump administration has gone further than any other previous U.S. government by letting the Appellate Body cease to function by blocking new nominations without offering a blueprint for reform; hinting at a potential tariff reset where the U.S. could eschew tariff bindings to extract reciprocity from other members; and periodically threatening to withdraw from the WTO, thereby further putting into question the viability of the international body.

COVID-19 and the nationalist temptation

The global pandemic has produced large-scale loss of life (with 1,162,512 deaths and 43,787,411 infections worldwide as of October 27, 2020) and has wreaked havoc on the world economy. Projections from the International Monetary Fund and WTO are grim: a global contraction estimated at -4.4% for emerging and developing Asia, and -1.7% for the rest of the world; and a drop in merchandise trade flows of -9.2% in 2020. While the long-term consequences of the COVID-19 crisis remain unknown, it had an immediate and negative effect on open trade policies. Many countries responded to the surge in demand for medical supplies and protective equipment by imposing export restrictions. At last count, 91 jurisdictions have imposed 200 restrictive measures. These measures are nevertheless self-defeating. They eliminate incentives for producers to scale up production and invite foreign retaliation that could cut off access to critical products and components. Better alternatives include refurbishing stockpile programs, diversifying domestic and international suppliers, and securing international commitments to keep medical supply chains open.

A new page for American trade policy?

American trade policy has been in flux. It moved from a failed attempt during the Obama administration to clinch trans-Pacific and trans-Atlantic trade deals, to an emphasis on bilateral talks and unilateral measures in the Trump era that have neither reduced the trade deficit nor brought back jobs. Hence, the question arises as to whether a Biden administration could produce a reset of trade policy with better outcomes at home and abroad.

Leveraging the U.S.-Korea partnership to sustain a rules-based trade architecture

Listed below are a number of areas where the United States and South Korea share interests and can work together to tackle new forms of protectionism, maintain open supply chains, and boost multilateral and regional trade governance:

1. Curbing COVID-19 protectionism

• The United States and South Korea should take a stand against export protectionism in medical supplies and personal protective equipment, urge WTO members to abide by the transparency and reporting requirements of these temporary measures, and promote transparency in stockpiling programs and cooperate to develop trusted supplier networks.

1. Coordinating on WTO reform

• The ongoing trilateral effort (U.S., EU, Japan) would benefit from South Korea’s participation as it seeks to develop updated rules on industrial subsidies and disciplines for state-owned enterprises. The United States and South Korea should advocate for fixing the Appellate Body system to enable the reactivation of its dispute settlement mechanism. For the United States in particular, this will require articulating concrete reform measures that would satisfy its concerns with judicial overreach.

1. Disseminating regional and transregional standards on the digital economy

• The United States and South Korea have advanced tech sectors and common interests in ensuring strong IP protections, freedom of data flows, and rules to promote the digital economy. They should collaborate with countries that abide by these standards to negotiate a plurilateral trade agreement on the digital economy.

1. Admission to the CPTPP

• Both the United States and South Korea remain outside the regional trade agreement with the most ambitious tariff elimination targets and with a rulebook that addresses state capitalism trading practices: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Admission bids on their part would greatly strengthen the reach of this trade grouping by encouraging existing members to ratify and encouraging others to join.

• The CPTPP chapter is closer to the United States–Mexico–Canada Agreement’s IP provisions (with no extended protection on biologicals) and the U.S. could make a push for targeted revisions on environment and labor standards. CPTPP members will have asks of their own, including assurances that the U.S. will not resort to unilateral tariffs against members for alleged unfair trading practices. This could take the form of a U.S. commitment to not bypass the CPTPP dispute settlement process with a Section 301 investigation.

Author’s Biography

■ Mireya Solís is director of the Center for East Asia Policy Studies, Philip Knight Chair in Japan Studies, and a senior fellow in the Foreign Policy program at Brookings. Prior to her arrival at Brookings, Solís was a tenured associate professor at American University’s School of International Service. Solís received a doctorate in government and a master's in East Asian studies from Harvard University, and a bachelor's in international relations from El Colegio de México. Solís is an expert on Japanese foreign economic policy, U.S.-Japan relations, international trade policy, and Asia-Pacific economic integration. Her publications include Banking on Multinationals: Public Credit and the Export of Japanese Sunset Industries, Cross-Regional Trade Agreements: Understanding Permeated Regionalism in East Asia (co-editor), Competitive Regionalism: FTA Diffusion in the Pacific Rim. Solís has offered expert commentary to The New York Times, Financial Times, Washington Post, Los Angeles Times, Politico, The New Yorker, Nikkei, Kyodo News, Asahi Shimbun, Jiji Press, Japan Times, NHK World, Bloomberg, CNN, and BBC, among others.