Minister Lim: The Importance of Globalisation and Inclusive Growth

Indeed, globalisation is not a panacea for all economic woes nor does it come without costs. While globalisation has lifted hundreds of millions of people out of poverty, and brought immense benefits to consumers, we have to acknowledge the growing discontent. Benefits from globalisation have not been distributed evenly. We also have to recognize the impact of disruptive technologies, which can result in skills becoming obsolete and being displaced.  However, we should not make globalization the scapegoat for slowing growth and unemployment. Closing borders and turning inward is not the answer. Economies are so interdependent nowadays that it would be very difficult to disconnect from the global value-chain. If we do so, our businesses and communities will lose out. Markets will shrink, fewer jobs will be created and consumers will have to bear higher costs and will have fewer choices. We should avoid actions which will only hurt ourselves and lead to retaliatory measures, undoing the good progress that we have achieved so far.

When Abe Goes to Washington

This is where things rapidly get tricky.  Given the Trump team’s penchant for scoring countries with the crudest metric of all—the size of the bilateral trade deficit in merchandise goods—Japan is headed for a rocky road.  Japan has had a substantial merchandise deficit (viewed from the Oval Office) for a long time.  It will probably make little difference how many jobs come from Japanese firms in the United States, or how many services are sold by American companies into Japan, or how many parts and components are shipped back and forth, or how much is invested in either country.  The Abe team is apparently heading to DC with a long list of details to show exactly how much Japan matters to American jobs now and into the future.  They will have plenty of statistics on currency rates and investment portfolios and long-term metrics and pledges to buy lots more energy.  Most likely, none of it matters.  Not when the trade deficit stands at more than $60 billion and the guys that are in charge care about only one number. 

Fragile Institutional Foundations of Global Trade

Once the bigger, more systemically important countries start to discuss allowing trade discrimination and consider implementation of illegal practices, the damage could flow rapidly.  Now the bridge may face the largest challenge of all.  Donald Trump believes that other countries are getting more benefits than the Americans receive.  In his quest to remedy this situation, he and his team seem willing to overturn decades of policy. The assumption seems to be that the system itself will hold.  But the system rests on a shaky bridge.  The support piling represented by the United States is critically important to the overall structure.  If it gets knocked out, the entire bridge will start to fall.

He’s Done It: Trump Withdraws the Americans from the TPP

What does US withdrawal mean for the TPP?  Members should also be quite clear that Trump will not change his mind on participation.  There is no renegotiation of the agreement that will satisfy him.  There is no way to reopen the deal, rename it, repackage the commitments and get it past his desk.  But this is—ironically—good news for the remaining TPP members.  It provides clarity on the agreement.  The United States is out.  We are not in a situation of endless tweaking, negotiating revisions and waiting for possible approval.  Such a condition might have lasted for months or even years and left companies sitting on the sidelines forever.  Instead, with the Americans clearly out under Trump, the remaining 11 can now decide what comes next.

Moving Ahead with the TPP11

Many have assumed that the TPP absent American participation is no longer worthwhile.  From the perspective of the remaining parties in the agreement, this is a flawed assessment.  A careful review of the TPP shows that the benefits of the TPP remain—whether or not the United States ever joins the deal. Why?  Because the United States is already a relatively open market, most of the other 11 TPP parties already have decent access to the American market whether or not the TPP includes the United States.  There is not a great deal of need for new preferential access to the US market, outside of a few sectors.  The US therefore is already in alignment with most of the TPP rules—whether or not it signs the agreement—in areas like standards or e-commerce.  As a result, for most firms trying to access American markets from TPP member countries, whether the United States in included or not in the deal is not especially critical.  Thus, from the point of view of the TPP11, moving ahead with the agreement makes a great deal of sense.  Little is actually lost.  It will be deeply damaging to American companies and US interests, but this is, frankly, America’s problem.