A virtuous cycle brewing on Asian trade

ARTICLE: "U.S.-Korea Trade Deal Still Faces Hurdles," by Evan Ramstad, Wall Street Journal, 3 April 2007, p. A2.

ARTICLE: "China Plans a U.S. Spending Spree," by J.R. Wu, Stephen Yang, Zhou Yang, Wall Street Journal, 3 April 2007, p. A8.

As always happens when multilat deals slow down or stall, bilats flourish. Bilats seem to flourish in good economic times, whereas countries are more willing to place the bigger bets called for by multilats during hard economic times.

Since we're in good economic times, we're seeing the best friends cut the most logical deals. Not wild stuff, and yet very good stuff.

The proposed trade pact between the U.S. and Korea will be the biggest one since NAFTA in terms of volume.

The big thing, though, is that the deal will be perceived as giving Korea a leg up on trade with the U.S., creating competitive pressures throughout the region for others. Furthermore, like with any deal, it serves to set the terms for similar deals, so the demonstration effect can be huge.

In short, no one wants to be left behind with a market like the United States, so you see countries like China do whatever it takes to keep the customer happy. Trade deficit getting too big? Promise to go on a spending spree buying U.S. stuff.

Something like the Korean-U.S. deal could drive a lot of harmonization in Asia. If everyone, over time, falls in line with that rule set, then every nation's rule set in Asia gets further in line with one another, making a multilat deal more possible. Since the U.S. would be the harmonizing element, we're setting ourselves up not to be shut out of an ASEAN-plus process that, in previous years, was starting to look like a keep-America-out effort, so Bush striking this deal now is a big deal, assuming he can sell it to a Congress that's feeling fairly protectionist right now (watch the anger over Korea banning U.S. beef (mad cow scare)).

Still, you take progress where you can get it when the global economy is booming. Since the fear factor is low right now on lost trade (meaning protectionism is more easily indulged), political capital must be spent.

Comments

[Jeremy]

I'm less doubtful on the ratification prospects on the American side than I am on the Korean one. Protectionism and economic nationalism (modern outgrowths of the traditional Korean xenophobia) are very, very deeply ingrained in this country.

Korean auto, electronics and cell phone manufacturers stand to make an absolute killing in the US market, and Koreans might finally have a wider range of goods available domestically, but talk to most Koreans on the street, and they're in an apoplectic rage that a handful of local farmers (and a pittance of GDP) might suffer, and convinced that FTA means "American control" of the economy.

[Jarrod Myrick]

tariff announcement came a day before trade deal w/Seoul. optimist in me wants to believe that wsj op-ed correct in that this was preemptive move: lots of protectionist packages floating around congress at the moment.