ECONOMICS ● GLOBAL
22 June 2018Is trading up still an option
On the road again
During a three week marketing tour across Asia, trade was a recurrent theme on the minds of
many HSBC corporate and financial institution clients. US trade policy changes globally -- and
vis-à-vis China in particular -- injected uncertainty into the terms of market access for trade
along some corridors. On the other hand, trade liberalisation efforts in the Asia-Pacific region
are providing opportunities for increased economic integration among countries that are home
to a majority of the world's population.
This report is structured across ten questions that came up repeatedly in meetings with clients,
policymakers and experts. It starts with an overview of underlying trade drivers and US trade
policy actions before drilling down to some specifics concerning trade in Asia. It adds to the
recent series of HSBC Global Research reports on the implications of the new US trade policy
including (among others): HSBC, Trade wars: Round two, 21 June 2018; HSBC, US China
Tariffs, 21 June 2018; HSBC, China-US tariff war, 16 June 2018.
Ten questions on US trade
US tariffs on intermediate inputs could push some US manufacturing
down the value chain, into lower productivity activity
Asian businesses may find new economic opportunities via trade
liberalisation efforts underway in the region and beyond
A trade war with the US could be costly, but the costs could rise
sharply further if third countries impose mutual trade measures tooECONOMICS ● GLOBAL
22 June 2018
1. Are there long-term drivers for an acceleration of trade growth
Economically speaking, trade has substantial potential for further growth. Looking out to the
year 2030, the HSBC Trade Navigator forecast considered the long-term drivers of trade (see:
Global Report, https://www.business.hsbc/trade-navigator, March 2018) such as availability
of labour supply. The results highlight the potential for annual growth in trade to accelerate: in
merchandise trade up to 6% and in services trade up to 7%. But, this is conditional on a
continuation of a favourable open-and-market-oriented global trade policy environment.
Emerging markets constitute a key segment of the world economy for future trade growth. A
major HSBC assessment in 2012 examined 17 emerging markets taking into account their
economic fundamentals: land, labour and capital, and the technology used to combine these
resources to produce output. In addition, we considered demographics, the pace of
technological change and the distribution of income.1
Combining these variables in a modelling exercise looking out to the year 2050, we confirmed
the significant economic potential in these nations (HSBC, Consumer in 2050, 15 October
2012). Across these emerging markets, HSBC found that economic development could enable
up to 2.6bn people to join the global middle class. Countries in Asia figure prominently on the
list with China and India having the largest gains in absolute numbers, but with countries such
as Indonesia, Malaysia, Philippines or Thailand experiencing large gains as well.
This shift from poverty could fuel a boom in demand that would transform a big chunk of world
trade. As these EMs build out their industrial capacity and infrastructure, demand should rise for
suppliers in the advanced economies and emerging markets that can deliver relevant capital
goods and services. Demand should rise in particular for products such as machinery,
transportation equipment, and B2B services.
The expanding middle class will fuel growth in tradable goods and services corresponding to
rising consumer aspirations for new varieties and higher quality goods and services. Businesses
producing consumer-oriented goods and services will increasingly target EM customers, in
some cases designing products from the outset for emerging market tastes.
In part thanks to new technologies like industrial 3D printing and e-commerce platforms, we may
see growth in trade along new trade corridors and an increase in services trade relative to
merchandise trade.2 As economic capacity is built out in EMs, we will likely see an increase in
south-south trade, as a complement to trade developments between the advanced and the
emerging economies.
Bottom line: with the support of further trade liberalisation, a broad increase in trade is feasible.
But, will this be realised
1 EM's covered included: Argentina, Brazil, China, Colombia, Egypt, India, Indonesia, Malaysia, Mexico,
Pakistan, Peru, Philippines, Poland, Russia, Saudi Arabia, Thailand, Turkey.
2 HSBC (2015), Trade Winds: shaping the future of international business, HSBC Commercial Banking
ECONOMICS ● GLOBAL
22 June 20182. How might the new US trade policy stance impact on this positive assessment
The US has shifted its trade policy orientation, moving to shelter a portion of its domestic
economy from import competition. The US is generally proceeding under US domestic law,
though it has also moved to challenge alleged unfair trade practices in China via the WTO
dispute settlement mechanism.3
More worrying is that the US may have also bent or broken WTO rules in its recent national
security action concerning aluminium and steel and its unfair trade practices case against
China. Such actions risk inviting retaliation against the US by its trade partners. But, perhaps
the greater danger is that they risk setting a precedent for use of similar protectionist measures
by other nations around the world.
It is difficult to tell whether the US may be using these various actions to gain negotiating clout
for eventual new trade liberalisation deals. But in the meantime, they constitute a burden on US
trade with partners in Asia and other regions. As US trade partners have begun to retaliate, this
burden applies not just to US import trade, but also US export trade.
In the event these measures ratchet up and gain scale in a sustained manner, trade may indeed
fail to reach its full potential.
3. What legal mechanisms does the US employ to implement trade protection
The US is using four main approaches in its efforts to constrain imports:
i) Anti-dumping/countervailing duty cases: Anti-dumping cases concern goods that are
allegedly sold below the cost of production or below the prices in their home market or proxy
markets. Countervailing duty cases concern products that are subsidised in a manner that is not
in conformity with WTO rules.
According to the US Department of Commerce, as of 19 June 2018, the Trump Administration
had launched 118 new cases, a 59% increase compared to the comparable period at the end of
the Obama Administration. These cases are generally narrowly specified, targeting specific
suppliers of particular products.
US anti-dumping and countervailing duty cases may be challenged by trade partners via the
WTO dispute settlement mechanism (and have been in the past). Currently, the US appears to
be aiming to broadly comply with WTO requirements in these cases. Nonetheless, South Korea
has challenged recent US anti-dumping actions in a case at the WTO this year.4
ii) Safeguard cases (Section 201, US Trade Act of 1974): Safeguard cases concern
instances where import surges cause serious injury (or threaten to do so) to a domestic
industry. WTO members that provide evidence of such developments may temporarily impose
protective measures, though trade partners may also request compensation.
In January 2018, the US imposed additional duties of up to 30% on imports of solar panels
(c.USD8.5bn annual imports) and tariffs of up to 50% on imports in large washing machines
(c.USD1.8bn annual imports).5 These actions were based on studies by the US I