From PM Lee’s speech: First, there is no irreconcilable ideological divide between the US and China. China may be communist in political structure, but it has adopted market principles in many areas. The Soviets sought to overturn the world order. But China has benefited from, and by and large worked within, the framework of existing multilateral institutions. During the Cold War, the Communist bloc sought to export Communism to the world. But China today is not attempting to turn other countries Communist. Indeed, it is often criticised for being too willing to do business with countries and leaders regardless of their reputation or standing, citing non-interference in the internal affairs of other countries. Second, China has extensive economic and trade links with the rest of the world. It is a major node in the world economy, unlike the USSR, whose economic links outside the Soviet bloc were negligible. In fact, all of the US’ allies in Asia, including Japan, South Korea, the Philippines, Thailand and Australia, as well as many of its friends and partners, including Singapore, have China as their largest trading partner. They all hope that the US and China will resolve their differences. They want to be friends with both: to nurture security and economic ties with the US, as they grow their business links with China. In a new Cold War, there can be no clear division between friend and foe. Nor is it possible to create NATO or Warsaw Pact equivalents with a hard line drawn through Asia, or down the middle of the Pacific Ocean. On the other hand, if there is indeed a conflict between the US and China, where will it end? The Cold War ended with the total collapse of the sclerotic planned economies of the Soviet Union and its allies, under the pressure of enormous defence spending. Even then, it took 40 years. It is highly improbable that the vigorous Chinese economy will collapse in the same way.
There is no justification that allows a government to raise tariff levels based on immigration levels. To take such a step means that the United States has decided that it will no longer bound by international trade rules. The early commentary on the Mexico decision has been nearly entirely focused on which companies in which sectors will be most at risk from an increase in tariffs by 5% on June 10, with additional increases monthly afterwards until every inbound product faces 25% tariffs by October 1. Such a damage assessment is important for firms that suddenly awoke to find themselves in the front lines of a new trade conflict that they did not anticipate. But it misses the larger point—everyone is affected by this decision. It is not just companies that ship goods from Mexico to the United States that should be paying attention. If the US proceeds down this path, it is the end of the global trade regime that has given stability and lowered risks for an increasingly larger share of companies and consumers since the 1940s.
The latest Trump tariff threat, of course, is designed to facilitate conclusion of the trade negotiations. Talks are scheduled for Washington DC on Thursday. It is certainly possible that the impeding escalation of tariffs will concentrate minds once more, leading to a very speedy conclusion of talks. Or not. Either way, the coming few days promise more drama on the US-China front than trade watchers have seen in months-- a major escalation of the trade war will happen on Friday or a truce. A second notable set of events takes place early next week that will also help shape global trade for the future. Dueling meetings are scheduled for Geneva and New Delhi for May 13-15. The former is the setting for the first round of talks of what is called the “plurilateral” on e-commerce in the World Trade Organization (WTO). Not all WTO member countries have agreed to join negotiations on the topic, so only a subset of members (74 so far) will sit down to start.
1. US-China: The biggest story is likely to remain the ongoing battle between the United States and China. The most immediate deadline is March 1, when the US has promised to impose 25% tariffs on $200 billion in Chinese imports that are currently subjected to 10% tariffs, if the two sides cannot successfully negotiate their way out of the complaints lodged in the Section 301 case. Chinese officials are meant to travel to the US later in January to continue discussions, followed by more talks in mid-February. Given the rapidly closing timeline, however, getting a satisfactory conclusion to the long list of US objectives is unlikely. Three scenarios are possible: 1) US President Donald Trump accepts an outcome that does not really address the systemic complaints at the heart of the Section 301, but goes for a package that includes more Chinese purchases of US agricultural and energy goods plus some limited commitments on Chinese reforms; 2) the timeline is extended, as talks are making headway with a resolution closer to filling most of the Section 301 demands possible by mid-year; or 3) talks collapse and tariffs are imposed on the $200 billion in goods, ramping up to include all Chinese imports to the US before the end of the year.
The United States, of course, is not Australia and has a customer base that is hard to ignore. Marketplaces will likely continue to deliver, despite higher costs, but will pass along these higher postal rates to customers who will pay more. In the meantime, firms will search for alternative markets outside the US to continue to grow their businesses. Governments outside the United States may follow suit and withdraw from the UPU as well, leaving US exporters, including many of the most vibrant global e-commerce vendors, at risk of failing to reach their own customers in fast-growing overseas markets where last mile delivery is always the most challenging part of e-commerce for firms. Withdrawing the United States from the UPU may seem like a small victory for Trump, but the implications and collateral damage it could cause to American consumers and companies alike may be significantly more than the relatively minor amount Trump claims the US Postal service is currently forgoing.