APEC Peru 2024 and the free trade agenda

The APEC Peru 2024, the annual meeting of the Asia Pacific Economic Cooperation (APEC) member countries was held from November 15 to 16, 2024. APEC currently has 21 member states including leading economies as the US, China and Japan. The conference is possibly as one of the very strange gatherings of leaders to discuss regional and global economic issues in the current climate of rising protectionism, intense geo-political rivalry and uncertain economic growth, and Donald Trump's threat to ignite global trade wars. After two days of meeting in Lima in this very uncertain time, these leaders will meet in Brazil for the G20 meeting in the following week.

The conference in Lima was also made very interesting because Dina Boluarte, Peru's accidental President who commands only 4 per cent public approval rating and had been absent from the public life for months was thrust into the gathering of world leaders in Lima including Joe Biden and Xi Jinping. She became president because she was the vice president of deposed president Pedro Castillo. To forestall any possibility of unrest or anything that could go wrong while the unpopular president came out of her isolation and moved onto the world stage, the government closed all government offices and schools for the duration of the conference, further adding to the drama.

The Asia-Pacific Economic Cooperation (APEC) was one of many multilateral trade organisations that emerged in the post-Cold War period. It was established in 1989 as an informal forum for free trade and sustainable development in the Asia-Pacific region, making it one of the oldest and highest-level multilateral forums in the Asia-Pacific region. It now contains 21 member countries accounting for nearly 40 per cent of the World's population and about half of global GDP and trade.

The purpose of APEC is to achieve the goal of free trade and investment. Among APEC objectives is the achievement of this goal within a strong and open multilateral trading system where any dilution of commitments in the context of multilateral trade liberalisation is opposed.

A unique characteristic of APEC as a regional trade arrangement is its members' commitment to something described as open regionalism, an ill-defined concept which advocates that trade barrier reduction should not only occur between APEC economies but also between APEC and non-APEC economies. Such vagueness has rendered APEC being in danger of shrinking into irrelevance as regional trading bloc right from its inception.

In addition, movement towards regional trade and investment liberalisation is to be further accomplished through greater economic and technical cooperation based on programmes and initiatives designed to develop and foster economic, educational and governmental links among APEC members.

APEC leaders met in Lima under the theme of "Empower, Include, Grow" to further advance APEC's cooperation agenda. The agenda encompasses three prioritises:  trade and investment for inclusive and interconnected growth; innovation and digitalisation to promote transition to the formal and global economy; and sustainable growth for resilient development. There were around 270 working groups involved in dealing with economic and trade issues in the organisation. While reports and analyses from these groups are on the agenda, they did not form the basis for major discussions.

While Joe Biden attended the conference, his presence was rendered irrelevant because of the ascension of Donald Trump who is committed to tear-up what remains of the global free trade order, which is the founding vision of APEC. Trump will replace free trade order with his agenda of tariff hikes and nationalistic protectionism.

The proposed US tariff hikes by Trump could rival those of the infamous Smoot-Hawley Tariff Act of 1930, also known as the Tariff Act of 1930. The Act raised U.S. import duties leading to a global trade war. It is estimated to have led to a 14 per cent contraction in world trade. The Smoot-Hawley Tariff Act is now widely blamed for worsening the severity of the Great Depression of 1930s in the U.S. and around the world and for creating conditions for WWII.

It is increasingly becoming clear that Trump will target countries that run trade surplus with the US with his tariff measures. He blamed those countries for "ripping off" America. All countries of APEC except Australia have trade surplus with the US. APEC's founding vision of free trade and deeper economic integration is a product of the time it was founded. It was the period of rapid globalisation, which has been slowly coming to an end and Trump will rather help to hasten that declining process.

Even without Trump attending the APEC summit in Lima, his return to the White House continued to dominate discussions among leaders. The delegates at the conference spent considerable amount of time discussing Trump and what could  be the possible outcome of his tariff wars .

Trump's previous presidency from 2017-21 also saw a period of heightened tensions with China resulting in a trade war caused by his imposition of tariffs on Chinese goods. But it is important to note that while the Biden administration eased the trade tension created by Trump with the European allies of the US, it maintained the Trump tariffs on China and further extended the economic warfare against it by imposing restrictions on technology transfers and imports.

The Chinese commerce minister Wang Wentao in an address to CEOs at the APEC summit said, "The world has entered a new period of turmoil and change; unilateralism and protectionism are spreading, fragmentation of the world economy has intensified…reversing the course of history."

Vietnam's president Luong Cuong, without directly naming Trump drew attention to the key concerns and warned, "isolationism, protectionism, and trade wars lead only to recessions, conflict and poverty". In making his speech he had also in mind Vietnam's position.  Vietnam in recent years generated the fourth largest trade surplus with the US - after China, the EU and Mexico, making it a major target of Trump's trade retaliation.

Of course, there is no ambiguity about the implications of Trump's "America First" agenda, but the role of the US in the global economy makes the issue so much a matter of concern for all. As things are shifting, countries are striving to navigate in this shifting world. There is a lot of anxiety about the changing direction of global trade order as well as international economic order. If the proposed 60 per cent tariff rate is imposed on Chinese imports, that could lead to a cut in the economic growth rate of China. Trump also pledged during his election campaign to protect US manufacturing from Chinese competition.

APEC's principal goal is to ensure that goods, services, capital, and labour can move easily across borders. In line with that policy, the leaders of the 21-member APEC issued a statement at the end of their two-day summit in Lima that said, "We acknowledge the importance of, and will continue to work to deliver a free, open, fair, non-discriminatory, transparent, inclusive and predictable trade and investment environment".

Trade has been facing strong headwinds in recent times. Merchandise trade contracted and services trade growth decelerated in 2023. Now Trump's threat to ignite global trade war will further decelerate trade flows.  But the issue is much deeper than Trump and his trade policy.  Victor Cha of the Washington based Centre for Stragic and International Affairs (CSIS) in a preview of the issues at the APEC summit 2024 pointed out that while APEC's mission was to create a free and open world trading order, "the politics of both parties in the United States has moved solidly in the direction of protectionism" and away from APEC's free trade agenda.

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