New US Tariff Rulings And Asia

The upheaval in global trade policies that the election of US President Donald Trump promised was at play in full swing this week. And after a truly mind-numbing game of will-we-won’t-we, it still remains unclear whether we will face the wrath of double digit US tariffs in the coming months (or years?).

But one thing is clear, the Trump Administration is not about to let go of its plan to use trade as leverage for dealmaking with other economies. When the US Court of International Trade struck down Trump’s tariff onslaught as unconstitutional on Wednesday, US officials quickly began considering other options, including employing an existing law to impose tariffs of up to 15% for 150 days.

Now, while the court’s ruling has been paused and Trump’s tariffs are, for now, back on, one thing will probably become clear to Asian leaders: US courts are not about to save them from the threat of tariffs.

The courts could, however, give them some much needed leverage to negotiate more favourable trade deals. Analysts at Japan-based Nomura expect tariff uncertainty to remain “significantly high”. “It is still too early to conclude that tariff risks have completely disappeared,” they say. But they also expect the court proceedings will “complicate the picture on trade deals that the Trump administration appears to be targeting.” America’s key trading partners might now look to “slow the process of trade negotiations and/or not offer significant concessions,” they say.

America’s top Asian trading partners, meanwhile, seem to be keeping their cards close to their chests. In South Korea, which currently faces US tariffs as high as 25%, a senior trade official told national newspaper JoongAng Daily that the government was “keeping a close watch on the situation” and will “respond calmly” in the days ahead.

Japanese negotiators currently engaged in talks with the US also seem to be giving mixed signals. While the country’s lead negotiator, Ryosei Akazawa, hinted on Thursday that Tokyo might agree to buy more American farm products and defence equipment, Defence Minister, Gen Nakatani, claimed that dialogue on trade and security will remain separate. And US-Japan trade talks anyway remain unpredictable considering Tokyo has remained steadfast on its demand for an end to US auto tariffs — which US court rulings will have no bearing on.

Then there’s China. Beijing has not made any comment on how the court rulings will affect its trade talks but has used them as a way of underscoring its opposition to tariffs. On Thursday, a Chinese commerce ministry spokesperson said Beijing “has always maintained that there are no winners in trade wars” and also went on to highlight that the levies had “triggered significant domestic opposition” within the US.

But perhaps, the biggest winner in all this would be India which, while facing the threat of some of the biggest tariffs, has remained hot-and-cold on the Trump Administration’s tariff agenda. While the Narendra Modi-led government initially dashed to reach a trade deal with the US, and considered making significant concessions, it also filed a WTO complaint over US’ sweeping steel tariffs and promised to impose retaliatory duties.

Those mixed messages were apparent following the US court rulings too. Indian newspapers were seen carrying a flurry of statements from unnamed government sources, some of which claimed that the trade talks were still on track. Others said the government might re-assess its deal strategy and some also said officials were in ‘wait and watch’ mode.

Trade analysts in the country, however, appealed to the Modi government to “pause and reassess its negotiation strategy”. One New Delhi-based trade think tank told the Press Trust of India that the country’s negotiators were working with the US with “high reciprocal tariffs in mind” and “preparing to eliminate tariffs on thousands of products”.

But these were mostly “one-sided concessions” that lacked “balance and fairness”, it said. “India should resist any agreement shaped by threats or based on unlawful measures,” it added.

So what lies ahead?

The Trump Administration has promised to take the legal battle on tariffs to the doorstep of the US Supreme Court if it needs to. America’s Politico magazine argues that even though the apex court is skewed in Trump’s favour, it may not necessarily throw its weight behind his tariff crusade. Still until a final legal answer emerges — potentially over the next two or so months — trade policies are likely to be marred by unyielding uncertainty.

The Center for Strategic and International Studies (CSIS) cautions that legal proceedings could actually worsen this uncertainty with Washington exploring alternative tariff tools. As one economist noted, in times such as these, perhaps “the main win is time to prepare.”

For Asia that would require treating tariffs as a long-term issue, regardless of how the legal battle plays out. And that would, effectively, mean economies across the continent may look to distance themselves from the United States. Such a shift would leave Asian nations with a few options: greater trade with each other and greater trade with China and the European Union. And according to the Council on Foreign Relations, China will likely emerge as the biggest winner of such a shift.

“This shift could leave China as the regional, and possibly global, economic hegemon,” CFR said in an analysis last month.

• Chinese fast-fashion giant Shein has dumped its plan for an initial public offering (IPO) in London and now plans to list in Hong Kong.

• Senior officials in Beijing are asking top automakers, including BYD and Dongfeng Motor, to explain how cars with zero mileage were being sold in the secondhand market.

• A massive explosion at a chemical plant in eastern China this week devastated the facility, killing at least five people and sending chemicals into homes at least a kilometre away.
  

• And a college in Hong Kong has vowed to make “unconditional offers” for international students at Harvard after the US revoked the university’s ability to enrol them.