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US Crackdown on Trade 'Cheaters' Raises Concern in Asia

• By  Textile Excellence
• April 12, 2017

Chinese Premier Li Keqiang and Norwegian Prime Minister Erna Solberg held talks and witnessed the signing of cooperation documents ranging from the resumption of a free trade agreement negotiations, and science and technology, to sports and health.

Strong trade ties between the United States and nations in Southeast Asia are under a cloud as a US investigation into trade imbalances gets underway. Regional governments say the apparent policy shift has spurred concern and anxiety.

A 90-day investigation by the US Commerce Department of countries with large trade surpluses with the United States follows President Donald Trump's call for a crackdown on "foreign importers that cheat." Trump said the shift will result in a "historic reversal" in US trade policy.

"While we've seen an improvement in the trade figures between January and February, we continue to be very focused on eliminating our nation's trade imbalance," said Commerce Secretary Wilbur Ross. "This administration is determined to achieve free and fair trade, to protect hard working Americans, and to grow our economy."

Among the Asian economies singled out by Trump were those of China, Japan, Thailand, South Korea, Malaysia, India, Taiwan, Indonesia and Vietnam. Analysts say the review may mark a major change in Asia's trading relationship with the United States.

Campaign rhetoric

After World War II, Southeast Asia's emerging economies, beginning with Japan, looked to the US economy to spur export led growth - key to the region's progress in lifting millions out of poverty.

But charges that some trade policies, particularly China's, had damaged the US economy were a prominent feature of Trump campaign rallies. Krystal Tan, an economist with the Singapore-based Capital Economics, said the trade investigation has led to concerns and uncertainties across the region.

"At this stage it's still quite difficult to see what kind of measures the US might want to take. It does look like countries that are probably most nervous about potentially being named currency manipulators are [South] Korea and Taiwan," Tan said.

The US argues that currency manipulators deliberately keep their currency low in value against the US dollar in order to boost their exports. Taiwan trade officials say the trading relationship with the US is not a hostile one, as over 80% of Taiwan's exports to the US are intermediate goods - those sent to the US for final assembly.

David Hsu, deputy director general of Taiwan's Bureau of Foreign Trade (BOFT) told local media the trading relationship with the US was "mutually beneficial." Taiwan's main concern is the potential imposition of sanctions following the review. Tan says South Korea and Taiwan, to avoid sanctions, will need to open their markets to more US products.

Malaysia's International Trade and Industry Minister, Ong Ka Chuan, told local media Malaysia was neither responsible for, nor taking advantage of, the US trade deficit. Ong said any sanctions could impact American manufacturers in Malaysia, such as Intel and Western Digital. "If Trump were to punish us for this trade surplus, the American firms will be the ones dealt a severe blow," he said.

Kuala Lumpur-based RHB Research chief economist Peck Boon Soon said the US policy revision left Malaysian business cautious on the outlook. "Yes, certainly it remains very uncertain until Trump really implements those policies and whether those policies would be able to be implemented. We are watching these things quite closely and we would be waiting for more developments before we decide what to do with our forecasts on exports," Peck said. In late 2016, export growth boosted Malaysia's economic growth rate to 4.5% - "the strongest in the four quarters."

The United States is Thailand's third largest trading partner after China and Japan. Two-way trade reached US$ 36.5 billion in 2016, with US$ 24.49 billion from Thai exports. The trade surplus with the US was US$ 12.4 billion. Major exports to the United States include machinery, electrical appliances, electronics and parts, rubber products and gems and jewelry.

Both Malaysia and Vietnam were key participants to the 12 nation Trans Pacific Partnership (TPP), a key component of President Barack Obama's "pivot to Asia" policy intended to counter China's growing political and economic influence.

Carl Thayer, a political scientist with the University of New South Wales, says, "Vietnam had its heart and soul on the TPP. They have a massive surplus with the US. It almost equals their massive deficit with China. But there's not very much they can do, they're being pragmatic and looking at the RCEP - the Regional Comprehensive Economic Partnership".

Thayer said Vietnam has banked on a strong US presence in Asia as a counterweight to China's regional influence, especially in the South China Sea. "The more Trump goes his own way Vietnam has got to do a five power balance with India, Russia, Japan, as well as China and the US weakness; the US side. So Vietnam has a harder time preventing being sucked into China's orbit - in all of this - it needs a strong US action," he said.

He says bilateral relations with Vietnam, built up over the past two decades, are a casualty of the trade policy shift. "Yes, it gets worse for Vietnam because they can't rely on the US. They have no idea what the US is going to do," he said.                    

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