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The election of Donald Trump as president of the United States in November 2016 created shock waves across the Asian countries that had been the targets of his campaign rhetoric. Candidate Trump had accused China of “outrageous theft of intellectual property, … illegal product dumping, and … devastating currency manipulation,” characterized the South Korea-US free trade agreement (KORUS FTA) as a “job killing trade deal,” and accused Japan of “ripping off” the United States.¹ He had promised to label China a currency manipulator “on Day One,” to withdraw from the Trans-Pacific Partnership (TPP), and “to bring jobs back from Mexico and from Japan … [and] Vietnam.”² Unmellowed by electoral victory, his inauguration speech on January 20, 2017 trumpeted a new mercantilist approach to trade: “We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength.”³

Nearly a year in, however, the economic impact of Trump’s presidency on Asia continues to be mostly hypothetical. There has certainly been a great deal of rhetoric and statements of principle—including withdrawal from the TPP, demands for renegotiation of KORUS FTA, and calls for negotiation of a bilateral FTA with Japan—as well as the appointment of aggressive protectionists in key positions, but at least for East Asia, the practical reality to date has been the declaration of a few trade enforcement actions and some small-bore agreements with China on trade and investment. Thus, when Trump made his first official trip to Asia in November 2017, East Asian nations welcomed him to their shores with a combination of trepidation and cautious optimism, while also moving forward with planning for a regional economic order without US leadership.

In this article, I take the opportunity offered by Trump’s visit to address the question of whether his administration is a force for cooperation or division among the economies of the Asia-Pacific. This involves three questions: First, does the Trump presidency represent continuity or radical change in US trade policy, both regionally and globally? Second, how are the countries of the Asia-Pacific reacting to Trump’s initiatives, exhortations, and threats? Third, what will be the likely shape of regional cooperation in the Trump era? I argue that the Trump trade agenda is indeed a radical change in US policy, but is likely to get bogged down as trading partners resist US pressure and work to develop new modes of regional cooperation that do not rely on US leadership or perhaps even participation. These are likely to disadvantage US firms and consumers and will instigate new contestation over the principles that underlie regional economic relations.

Trump’s Trade Policy as Radical Break

There are two contending interpretations of the Trump administration’s approach to trade policy. The first is to see significant continuity with past practice. In this perspective, the Trump administration’s target is not free trade per se, but the tendency of trading partners to violate their obligations—whether through import barriers, export subsidies, or theft of intellectual property—and create an unlevel playing field. This is a traditional US trade hawk view that calls for either better trade agreements or more aggressive enforcement actions, potentially including unilateral measures to punish misbehavior. In short, this view sees the Trump administration as nothing new: trade negotiations and enforcement actions have always been central to the mission of the office of the US Trade Representative (USTR), although the intensity and targeting strategy of USTR have shifted over time depending on the concerns and constituencies of particular administrations.⁴ One piece of evidence in favor of this status quo interpretation can be found in the opening statement of USTR Robert Lighthizer at his confirmation hearing, where he asserted, “We can do better in negotiating our trade agreements and stronger in enforcing our trade laws. I further believe we need an international trade system that functions the way it was negotiated and that the United States must be ready to work with like-minded trading partners to ensure fair trade and to encourage market efficiency.”⁵ While it is hard to deny that much of the trade rhetoric of others in the Trump administration has been hyperbolic and bellicose, such statements reflect either a greater intensity of constituent concern over foreign competition or an energetic tactic to improve bargaining leverage versus trade partners, or a combination of both. Lighthizer himself, a former deputy USTR known for his toughness in US-Japan trade negotiators during the free trade-oriented administration of President Ronald Reagan, might be seen to embody this more muscular, but still pro-trade, approach.

The alternative interpretation is that Trump and his trade team hold a radically different understanding of the relationship between trade and economic prosperity from that of any US administration in the post-Depression era. Evidence for this interpretation can be found in a variety of statements by administration officials and by Trump himself. Among these, perhaps the most authoritative was a policy paper by senior campaign advisors Peter Navarro (now Director of the White House National Trade Council) and Wilbur Ross (Secretary of Commerce), entitled “Scoring the Trump Economic Plan: Trade, Regulatory, & Energy Policy Impacts,” which was issued by the Trump campaign in late September 2016.⁶ The paper emphasizes what it calls “the self-inflicted negative impacts from poorly negotiated trade deals and the failure to enforce them,” highlighting in particular China’s accession to the World Trade Organization (WTO), which it claims led to “a flood of illegally subsidized Chinese imports” and “rapidly accelerated the offshoring of America’s factories and a concomitant decline in US domestic business investment.” The basis of the policy paper is what the authors call the “trade deficit drag”—in other words, trade deficits reduce economic production on a one-to-one basis. This assumption is at odds with the understanding of the vast majority of US economists, which is that trade deficits reflect simply the difference between production and consumption.

The obvious implication of “trade deficit drag” is that reducing the overall trade deficit will make Americans richer. The Trump administration’s trade team seeks to operationalize this understanding by focusing on bilateral deficits. In conventional macroeconomics, the idea that the overall deficit can be reduced by reducing each bilateral deficit is a fallacy of composition. The reason is that the overall imbalance between production and consumption is driven by those large macroeconomic variables themselves—in other words, consumption patterns are driven not by a series of trading relationships, but by households’ preferences. If a particular bilateral deficit is forced to shift to balance, economists would predict either that imports would rise from another location or that households would consume less. At best, therefore, the “whack-a-mole” approach to narrowing one bilateral deficit at a time should simply shift the geographical pattern of imports without changing the overall trade balance. At worst, it would mean less consumption and lower economic welfare, and possibly recession. In contrast, the Navarro-Ross proposition holds that households denied access to desired imports from a particular country would instead consume a good or service produced domestically, thus raising domestic employment. This is a radical idea indeed.

The substantive actions of the Trump administration to date could in principle reflect either continuity (albeit a very aggressive version of previous trade policy) or radical change. There is certainly a case to be made for continuity: The administration has abandoned the TPP, but that was an unpopular trade agreement that had not been ratified and Trump’s Democratic opponent Hillary Clinton had also pledged to oppose. The Trump administration has been aggressive in seeking to push for changes in the North American Free Trade Agreement (NAFTA), but the Obama administration sought to modify it as well in 2009 and arguably NAFTA does not adequately address many of the key changes in trade patterns (supply chain, information services, etc.) of the last quarter century. Trying to reopen KORUS FTA so soon after its ratification is certainly unusual, but KORUS FTA has never been a popular agreement, especially in the Rust Belt. Meanwhile, the administration’s trade enforcement actions, including on softwood lumber from Canada and intellectual property theft in China, build upon years of USTR practice.

I argue, however, that the evidence for radical change is more compelling than that for continuity. In terms of NAFTA and KORUS FTA, as well as for the proposed bilateral US-Japan FTA, the Trump administration is demanding that the goals of the agreements be reset as elimination of bilateral deficits, which constitutes an enormous change of strategy (not to mention economic theory). In enforcement actions, USTR has dusted off so-called “Super-301”—previously used as a weapon in the US-Japan trade wars of the late 1980s and early 1990s—against China and Canada and threatened to take action against Chinese aluminum imports on the basis of a seldom-used national security clause (Section 232) of the 1962 Trade Expansion Law.⁷ On a rhetorical level, Treasury Secretary Steven Mnuchin blocked the inclusion of even a pro forma nod to the principle of free trade in the March 2017 G20 finance ministers’ meeting.⁸

The Trump Trade Agenda Comes to East Asia

As Trump set off for East Asia on November 3, questions about how his administration would deal with trade and investment issues in the region remained unanswered. Over the next week and a half, he visited Japan, South Korea, China, Vietnam, and the Philippines and attended the Asia-Pacific Economic Cooperation (APEC) Economic Leaders’ Meeting, the Association of Southeast Asian Nations (ASEAN) Summit, and the East Asia Summit. He brought with him both an entourage of business leaders and a mercantilist message about his personal vision for American trade relations. While assessments of the trip were mixed, ranging from Trump’s own “tremendously successful”⁹ to more skeptical voices,¹⁰ it was clear that he had made a strong impression—even if it remained unclear whether his visit would prove to be an obstacle to regional economic cooperation or a spur to new forms of cooperation. Trump himself exuded confidence about his ability to change trade rules for the region, tweeting on November 13, “After my tour of Asia, all Countries dealing with us on TRADE know that the rules have changed. The United States has to be treated fairly and in a reciprocal fashion. The massive TRADE deficits must go down quickly!” While none of the leaders with whom he visited offered any encouragement for a fundamental reworking of regional trade, let alone writing or rewriting bilateral FTAs, the administration claimed credit for $250 billion in new business deals, a boast that was clearly in line with Trump’s preoccupation with transactional deal making.¹¹

The fullest exposition of the Trump trade agenda in East Asia can be found in Trump’s remarks at the APEC meeting in Da Nang. He began by nodding to the traditional US commitment to liberal internationalism: “I’ve had the honor of sharing our vision for a free and open Indo-Pacific—a place where sovereign and independent nations, with diverse cultures and many different dreams, can all prosper side-by-side, and thrive in freedom and in peace.”¹² However, the major message of the speech was another matter:

“At the core of this partnership, we seek robust trade relationships rooted in the principles of fairness and reciprocity… Unfortunately, for too long and in too many places, the opposite has happened. For many years, the United States systematically opened our economy with few conditions. We lowered or ended tariffs, reduced trade barriers, and allowed foreign goods to flow freely into our country. But while we lowered market barriers, other countries didn’t open their markets to us…
The United States promoted private enterprise, innovation, and industry. Other countries used government-run industrial planning and state-owned enterprises. We adhered to WTO principles on protecting intellectual property and ensuring fair and equal market access. They engaged in product dumping, subsidized goods, currency manipulation, and predatory industrial policies…

We can no longer tolerate these chronic trade abuses, and we will not tolerate them. Despite years of broken promises, we were told that someday soon everyone would behave fairly and responsibly. People in America and throughout the Indo-Pacific region have waited for that day to come. But it never has…

The current trade imbalance is not acceptable… From this day forward, we will compete on a fair and equal basis. We are not going to let the United States be taken advantage of anymore. I am always going to put America first the same way that I expect all of you in this room to put your countries first.”¹³

The Da Nang speech was a clear statement of the Trump trade agenda. While insisting that trade partners must eliminate unfair trade practices, the president made clear that success would be measured in bilateral trade imbalances, and that East Asian countries were on notice that their “chronic trade abuses” were unacceptable and would be punished by US trade action.

If the Trump administration is indeed to be taken at its word regarding its strategy on trade and investment, then what are the implications for East Asia and the Asia-Pacific? Trump never really explained what he meant by his claimed vision of a “free and open Indo-Pacific”—while lauding regional countries for their political and economic successes, his public speeches offered no guide to future cooperation beyond a network of bilateral FTAs that would serve US interests. Not surprisingly, there is no indication that Trump’s vision has gained traction in any of the Asia-Pacific economies. This can already be seen in the contentious NAFTA renegotiations, as well as throughout East Asia. Immediately after Trump left Japan, Deputy Prime Minister Aso Taro announced that Japan had no intention of negotiating a bilateral FTA with the United States if the purpose were to reduce the Japanese bilateral surplus.¹⁴ South Korea has reluctantly agreed to renegotiate KORUS FTA, but South Korea’s former lead negotiator has been quoted as saying, “How can we trust the United States? … It’s a matter of trust, and this kind of attitude does not help in strengthening allies.”¹⁵ Trump was more diplomatic in China, praising President Xi Jinping and gushing over business deals that were announced during his visit, but the Chinese government expressed no willingness to discuss bilateral deficits or to make more than marginal liberalizations.¹⁶

Promoting Asia-Pacific Economic Cooperation without the United States?

With prospects for US leadership in doubt, Asia-Pacific countries have a limited set of options for pursuing regional cooperation, including not only trade agreements but also other efforts to enhance connectivity and mutual dependence, such as the Chinese-led Belt and Road Initiative (BRI) and the Chiang Mai Initiative Multilateralization.¹⁷ Among the options on trade agreements are a reconstituted TPP with the 11 remaining members (TPP-11), the ASEAN-led Regional Comprehensive Economic Partnership (RCEP), and various extra-regional agreements. In this section, I summarize these options briefly.

Trade Agreements

Prior to Trump’s election, analysts had been discussing for several years what they saw as a contest between the TPP and RCEP. The US-led TPP was seen as the more ambitious effort, encompassing 29 chapters and multiple features (“disciplines,” in the language of trade agreements) that extended far beyond WTO obligations. In effect, TPP was not designed simply as a trade agreement among 12 disparate economies, but also as a common rulebook for managing a variety of economic functions that were seen as essential to long-run integration. These included issues such as competition policy, intellectual property rights, SOE disciplines, and environmental protection, in addition to extending the reach of obligations in investment and in trade in both goods and services.¹⁸ RCEP has a larger, less selective membership that includes all the ASEAN members plus China, Japan, South Korea, India, Australia, and New Zealand. It is more of a classical developing economy FTA in terms of coverage and degree of liberalization. Most analysts presented TPP as a vehicle of US structural power that was meant not only to bind together the participating economies as a political counterweight to China but also to create a new framework for regional and global trade that would force China and others to follow rules designed by the United States and its partners. RCEP negotiations were far less advanced—partly because of its inclusion of India, which has been reluctant to make significant concessions on tariff reductions—and typically moved forward only in response to developments in TPP.¹⁹

So far, Trump’s election and his visit to East Asia appear not to have reinvigorated the RCEP negotiations. This is somewhat surprising, particularly if we accept the common wisdom that RCEP is a vehicle for Chinese leadership in the trade realm; in this regard, Min Ye argues that the BRI is a better vehicle for Chinese regional leadership, as it provides opportunity for connectivity, deep integration, and expansion of regional trading networks without requiring tedious and contentious negotiations over each tariff-line or particular non-tariff barrier.²⁰ Thus, China has not pushed on RCEP to the extent that outside analysts have expected.

Instead of RCEP, regional economies have chosen one or both of two strategies for reducing their vulnerability to US trade pressure. First is the emergence of TPP-11, now renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The Japanese government was instrumental in resurrecting TPP following Trump’s statement of withdrawal and the failure of Prime Minister Abe to persuade him to reconsider earlier in 2017. While negotiations had already been progressing on how to modify TPP to make it more attractive to the remaining members (mostly by removing items that had been of particular interest to the United States, such as data exclusivity for biologics and investor-state dispute settlement), Trump’s Asia visit created new incentives to move forward with TPP-11, and the members announced a tentative agreement on November 11, before Trump had even left Asia.²¹ Economic analysis shows that TPP-11 is a pale shadow of the original TPP in terms of its economic impact,²² but it serves several purposes for Japan and other leading members. Like the original TPP it lays down a marker that the members are not willing to cede leadership in the Asia-Pacific to China, and instead seeks to create a high-standard mechanism for deep economic integration. It is also a rebuke to the Trump trade agenda, making clear its members’ preference for a multilateral, rules-based regional approach rather than arranging themselves in a web of uncoordinated bilateral agreements and making themselves subject to the transactional approach of the Trump administration’s trade team. At the same time, by keeping the TPP agreement and structure mostly intact, it invites the United States (and China) to join at a later date. In this way, TPP-11 offers a practical vision of rule-based regional integration, in contrast with the hollow rhetoric of a “free and open Indo-Pacific region” that Trump presented in Da Nang.

The Japanese government has also moved with alacrity to complete its free trade agreement with the European Union, less than one month after the TPP-11 announcement. Abe Shinzo made clear the strategic rationale for his government’s newfound leadership in pushing forward high-quality FTAs, stating that the agreement showed Japan’s commitment “to keeping the world economy working on the basis of free, open and fair markets with clear and transparent rules.”²³ Other Asia-Pacific countries are also pursuing FTAs with the European Union. Although most (Canada, ASEAN countries, Mexico’s renegotiation/updating) were in progress before Trump’s election, Australia and New Zealand started their negotiations with the EU in 2017.²⁴

It is striking that the most active players in carving out new trade agreements that do not include the United States are the economies that have been most closely intertwined with previous US administrations’ visions for regional economic cooperation. However, they have not flocked to RCEP, which is often portrayed as China’s preferred alternative for a regional trade agreement. The continued preference for creating a liberal, rules-based architecture demonstrates the attractiveness of that traditional US approach to trade policy, but the voluntary absence of the United States undermines prospects for TPP-11 to set rules beyond the participating countries themselves.

Belt and Road Initiative

The BRI offers an alternative mode of regional cooperation, based on Chinese leadership.²⁵ The Chinese vision of integration uses infrastructure development to draw the region together through physical connectivity, joint planning, public-private cooperation, and regional financial flows. While BRI serves other purposes, including building regional political influence and providing markets for Chinese materials industries suffering from overcapacity, it is important not to lose sight of its potential to promote regional integration including through trade and investment. This is true even if new regional or bilateral FTAs are not established to support BRI-induced economic regionalization.

The BRI is, by the nature of its emphasis on fixed infrastructure, geographically bounded. However, the economic development that it promotes is open in principle. That is true not only of the build phase (although many US and Japanese officials and firms have expressed their skepticism that Chinese-funded projects will be open to contracting with foreign firms). More importantly, if economic development objectives are successful, locals and foreigners should be able to take advantage of the business opportunities that result, just as American and European electronics and IT hardware producers were able to benefit from the regional production networks created with Japanese money in Southeast Asia in the late 1980s.²⁶ That said, this would be a Chinese-led regional architecture, with Chinese state-owned enterprises and financial institutions as leading players shaping the economies and possibly politics of neighboring countries. Despite the potential for profits and the natural excitement of such a large-scale project of connectivity, there remain many in Asia who are suspicious of Chinese intentions and prefer to build alternatives to a Chinese-led regional order.

Both the United States and Japan have recently shown signs of warming to BRI. The United States sent a delegation to the May 2017 BRI summit in Beijing, and the Trump administration has made clear its interest in having US firms participate in BRI projects. Japanese firms have also shown interest, while the Japanese government has conditionally offered its support for BRI if “the initiative will contribute to regional and global peace and prosperity by adopting ideas held by all in the international community.”²⁷ Perhaps more importantly, the Asian Development Bank (dominated by Japan and the United States) has asserted its willingness to cooperate on BRI projects. There have been reports that Japan and the United States are seeking to create an alternative infrastructure plan to the BRI,²⁸ but this appears to add little to the existing Japanese efforts to promote “high-quality” Japanese-built infrastructure against their Chinese competitors.

Conclusion

Until the election of Donald Trump, the United States was always the natural candidate for leadership in creating and recreating a regional, rules-based order. Its presence as a rule maker and enforcer, while sometimes frustrating, was reassuring to states that needed an enforcer of WTO norms, even if actual US behavior was often self-interested or inconsistent. The United States also served, if not always willingly, as the source of much of the demand for Asia’s excess production. The Trump administration has rendered the United States less fit for those purposes—not to mention, far less predictable. At the same time, there is no single state that is in a position to step in and take its place. Therefore, countries like Japan are now grappling to find ways to shelter themselves from US trade pressure even as they try to limit their dependence on the enormous productive capacity and markets of China. There is simply no good substitute for the role that the American state and economy had filled (if not always perfectly or selflessly).

For now, Japan and the other TPP-11 members have chosen to pursue multiple strategies to prevent the creation of a regional rules vacuum and to minimize reliance on a rising but unpredictable China. These include seeking to partially recreate the TPP agreement (with the hope that the United States will someday rejoin), taking advantage of the benefits of China’s transnational development effort, and diversifying market access and political relations through building new FTAs and investment frameworks. These patterns of resistance and hedging are also likely to constrain the Trump administration’s options in Asia, which should be of additional benefit to Japan, South Korea, and their neighbors.

Meanwhile, China is taking the initiative, with its concrete vision of a connected Asia providing an alternative mechanism for regional integration. At a critical moment in history, the Trump administration’s revanchist mercantilist approach threatens to make the United States a spectator in the creation of Asia’s new regional economic architecture—and to have little to show for its “America First” policy in Asia beyond trade disputes and some token BRI contracts. This is the true legacy of Trump’s Asia visit: an increasingly integrated Asia, increasingly divided from the US economy.