US-China trade war and Brexit expose ‘complexity’ of global trade

Leading Japanese economist highlights dangers of protectionism with modern supply chains

Fukunari Kimura: chief economist at the Economic Research Institute for Asean and East Asia. American tariffs on Chinese products will have negative consequences for US producers that rely on foreign inputs and in turn for consumers who buy the produce, he said.

Fukunari Kimura: chief economist at the Economic Research Institute for Asean and East Asia. American tariffs on Chinese products will have negative consequences for US producers that rely on foreign inputs and in turn for consumers who buy the produce, he said.

 

The escalating US-China trade war and Brexit have exposed the extent and complexity of global supply chains and ultimately the dangers of acting unilaterally, Fukunari Kimura, chief economist at the Economic Research Institute for ASEAN and East Asia, told an audience in Dublin on Monday.

He said the international division of labour with products being produced across multiple jurisdictions would make the economic consequences of a trade war more severe than in the past.

US president Donald Trump has already imposed tariffs on $250 billion worth of Chinese imports, and the rate of some of the levies is set to increase to 25 per cent in January, from 10 per cent. China has retaliated with tariffs of its own on certain US goods.

American tariffs on Chinese products will have negative consequences for US producers that rely on foreign inputs and in turn for consumers who buy the produce, Prof Kimura told the event hosted by the Trinity Centre for Asian Studies supported by the Embassy of Japan in Ireland.

Broader costs

So while the tariffs may protect a few narrow US industries they generate much broader costs for the economy as a whole, making the current stance by Mr Trump “self-defeating”, he said.

Prof Kimura said the protectionist stance by Mr Trump was a throwback to 18th-century mercantilism when exports were seen as good and imports were bad, and when most products were made from start to finish in one country.

He said US trade policy was economically damaging not just to the global economy and for states such as Ireland caught in the crossfire, “but also to the rules-based international trade regime” that underpin it.

While stemming from a different process, Brexit and the possible imposition of trade or non-trade barriers would result in similar negative consequences for the UK and Europe.

Facing large uncertainties in world trade, Japan has recently made “substantial advancements” in its mega-FTA (Free Trade Agreement) strategy, including the recently signed Japan-EU trade deal, which covered 640 million people and 28 per cent of the world income, Prof Kimura said.

He said both blocs “must continuously collaborate with each other to further promote rule-based trade regime” and oppose the current wave of protectionism. With the US pulling out of the Trans-Pacific Partnership (TPP) deal, the best Japan could have hoped for is earning time for negotiation, he said.