Future U.S. trade negotiations – multilateral or bilateral?

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As soon as Donald Trump was elected President of the biggest economy in the world, his immediate trade-related action was to cancel the much anticipated (at least in Asia Pacific) Transpacific Trade Agreement that would have benefited not only small and late developing economies like Singapore, Malaysia, Vietnam and New Zealand, but surprisingly also the United States. Even Japanese economists see more good than bad in such a multilateral trade agreement but one may suspect this is due to geopolitical concern (e.g. growing influence of China in Asia Pacific) more than any economic benefit which the Japanese economy does not already enjoy since the end of the Second World War.

The question that remains to be answered is where should the road ahead point to as far as the U.S. economy is concerned?

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Here are two factors to consider.

COLD WAR ERA TRADE AGREEMENTS. The short to medium term focus of the U.S. government is to improve the country’s overall trade balance in the most effective manner and there is no better way to do this than to target the already developed markets of the world, which incidentally are the ones that have prospered from lop-sided trade agreements with the United States during the Cold War period. Those economies include large-sized, geopolitically strategic partners in Europe (i.e. Germany, France, Italy, Spain and the United Kingdom) and Asia (i.e. Japan and South Korea). The plain truth is that these large economies with their large middle classes should be the prime targets for ambitious U.S. exporters, and not smaller and relatively late developers such as Singapore, Malaysia, Vietnam and New Zealand. The latter economies are good for the long term but not if President Trump’s immediate concern is to address the growing trade deficits of the United States.

GEOPOLITICAL BARGAINING POWER. On the other hand, it can be argued that although they are small and late developers and not much of a direct benefit for the United States, economies such as Singapore, Malaysia, Vietnam and New Zealand are in fact the new strategic partners for U.S. trade negotiators. For it is very likely that should the Trump administration insists on refocusing its efforts on bilateral trade agreements with her trading partners, although the United States will get favorable terms with small and late developers like Singapore, Malaysia, Vietnam and New Zealand, it will not change much bilateral trade deals that are historically already “set in stone” with geopolitical partners Japan and South Korea. The reason is simply, and still, international politics and not economics: East Asia is still a volatile region and the United States need Japan and South Korea more than they need her. As such, a multilateral trade agreement such as the already doomed TPP combining a large and developed economy such as Japan with a small and late developing economy such as Malaysia, which opens up the Japanese market to all TPP partners large and small, indirectly benefits the United States through the back door, without having to bilaterally beg the Japanese to open up its market for U.S. exporters (which is likely to fail).