Lee Hsien Loong
Trade friction between China and the United States has been brewing for some time. But with the Trump administration’s announcement of unilateral tariffs on imports, targeted at China, the spectre of a trade war has never been clearer.
There is broad political support in the United States for such measures. American businesses that had previously advocated China’s accession to the World Trade Organisation (WTO) now feel disadvantaged doing business in China. They feel, with some justification, that the playing field is uneven, market access is limited and investments are restricted, especially in the financial and technology sectors. Trade arrangements and concessions made in the past when China was about 5 per cent of the world’s gross domestic product are less readily accepted today with China’s share rising to 15 per cent.
But unilateral tariffs are not the correct solution. A trade war between the United States and China is far from inevitable, but if one breaks out, it will gravely undermine the rules-based multilateral system that has underpinned global prosperity since the end of World War II. Countries around the world, big and small, will be hurt.
We believe trade disputes should be resolved within the WTO framework. As economists have pointed out, when assessing economic relationships, what matters is not a country’s bilateral trade balance with a specific trading partner but its overall trade balance with the rest of the world. Furthermore, the cause of a country’s trade deficit lies at home. A trade deficit is the result of a country consuming more than it produces, and it is neither caused nor cured by trade restrictions.
The United States and China share the most important bilateral relationship in the world. Both countries have benefited from an open, rules-based international order and multilateral trading system. This has fostered economic cooperation within the Asia-Pacific region and deepened interdependence among Asia, the United States, Europe and the rest of the world.
Asia is the fastest-growing export market for US goods and services. As the world’s second-busiest port and fourth-largest financial centre, Singapore is a global hub that connects the economies of the United States and Asia. We are a small, open economy with trade flows more than three times our GDP. A trade war between the two largest economies in the world will have a big, negative impact on Singapore.
Since China joined the WTO in 2001, its weight in the global economy and its share of world trade have grown enormously. This has shifted the overall strategic balance. It has also raised reasonable expectations for China to liberalise its markets further and contribute more to the multilateral trading system.
China has declared its commitment to upholding openness and multilateralism. The Asian Infrastructure Investment Bank and the Belt and Road Initiative are two major efforts by China to strengthen trade and investment ties, and to enhance integration and interdependence. At the recent Boao Forum for Asia Annual Conference, President Xi Jinping announced further plans to open up China’s financial sector, liberalise foreign investment rules, protect intellectual property rights and lower tariffs on automobile imports.
These moves have been acknowledged and welcomed by President Trump. We look forward to seeing these steps elaborated, implemented and bearing fruit.
Although most Asia-Pacific countries continue to pursue trade and economic liberalisation – for example, through the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership – these initiatives will not compensate for the damage caused by a trade war.
Beyond the economic loss, strained ties between the United States and China will make it harder for them to cooperate on other pressing issues such as the denuclearisation of the Korean Peninsula, regional security, nonproliferation and climate change. None of these issues can be solved without the full participation of both countries. If any of these disputes escalates and destabilises relations between the United States and China, the consequences for the world would be disastrous.
Competition between the United States and China is to be expected. But whether this competition takes place within a framework of interdependence and generally
accepted international rules makes all the difference. Ultimately, what is at stake is war and peace, and the security and stability of the world. The United States, China and the rest of the world have too much at stake.
This article first appeared in The Washington Post on 18 April.