[The Editors' Verdict] Is This Year's Export Outlook Too Optimistic?

Roundtable on Japanese Government's Export Regulations, Professor Jeong In-kyo, Inha University. / Photo by Kim Hyun-min kimhyun81@

Both optimism and pessimism about the future direction of the conflict between the United States and China must be approached with caution. Optimists believe that since the first phase of the four-stage negotiations has been concluded, the US and China will be able to resolve their conflicts through further negotiations.

However, pessimists point out problems with the first phase agreement itself. Although China promised to expand imports of US agricultural products and improve some trade systems such as intellectual property (IP) protection, they argue this is merely a temporary measure to avoid additional US tariffs. Sharp differences remain between the US and China on core issues such as subsidies to state-owned enterprises and other non-market economy problems, forced technology transfers and IP theft prevention, new rules for digital trade (e-commerce), and ensuring exchange rate transparency. The US continues its bilateral conflict structure with China and threatens to withdraw from the World Trade Organization (WTO) if it does not reform to reflect 21st-century trade realities. Meanwhile, China claims it deserves "special and differential treatment (S&DT)" as a developing country.

Additionally, the US is preparing for a bloc confrontation. In September 2018, the US Trade Representative (USTR) invited trade ministers from the European Union (EU) and Japan to discuss the international trade order and WTO reform. These countries agreed to jointly respond to issues where the US confronts China, such as non-market economic policies and practices. As China is soon to become the world's largest economy, the EU and Japan appear to agree with the Trump administration's China policy, recognizing the need to respond to China's state capitalism as well as to maintain economic cooperation.

China argues that its "socialism with Chinese characteristics" market economy should be considered alongside the US-style market economy. However, as China’s international status as the world’s largest trading nation strengthens due to its massive domestic market and unfair forced technology transfers, advanced countries inevitably worry whether the current WTO system can be maintained as is. Although the US threatens to withdraw from the WTO, the repercussions of such a move cannot be ignored due to the significant political and economic burdens involved.

There is also strong domestic opposition in the US to dismantling the current international economic system and trade order that has allowed the US to dominate global hegemony since World War II. However, it is difficult to predict what decisions President Donald Trump will make, including possible WTO withdrawal, ahead of the presidential election. Trump’s close circle lacks advisors who can provide sound guidance on the future of the US or international relations. Especially, foreign policy depends heavily on Trump’s decisions. If domestic opinion against a hardline China policy worsens, the US might abandon WTO withdrawal plans, but Trump’s support base for his China policy remains solid. Moreover, by agreeing to import $50 billion of US agricultural products in the first phase deal, China has weakened opposition from the agricultural sector.

The US threat to withdraw from the WTO may end as a negotiation tactic but could also become a reality. It is too risky to dismiss the US’s WTO withdrawal claims as mere bluster or a strategy to gain leverage in negotiations. The repeated US demands for WTO reform, despite knowing it may not succeed, can be seen as accumulating justification for withdrawal. Our trade authorities expect an improvement in the external trade environment and export growth this year. However, besides unexpected situations like the US-Iran military confrontation early in the year, the trade environment this year is unlikely to improve compared to last year. We must pay attention to the increased uncertainty of external variables and realistically revise optimistic forecasts.

Jin-Kyo Jung, Professor, Department of International Trade, Inha University