The United States just announced a tariff hike of 5 per cent to be imposed on Mexico, an economy from which it imports more goods than anywhere else—except China.
Frictions between the big economies are nothing to celebrate—they’ll likely cost the global economy hundreds of billions of dollars—but the fact that windows are still open for negotiations is. It’s when they’ve stopped talking to each other that we should be worried.
While tariff announcements were being made elsewhere, trade ministers from Asia-Pacific economies, including the United States, China and Mexico, convened for their annual Asia-Pacific Economic Cooperation (APEC) in early May in the coastal city of Viña del Mar, in Chile.
As host of APEC for 2019, Chile is facilitating multilateral talks focusing on economic cooperation among the 21 Pacific Rim economies that make up the APEC region. The two largest of these economies just happen to be engaged in bilateral tensions that have implications for the rest. The situation calls for a steady hand on the host’s part.
Chile has positioned itself as a leader in competitiveness and innovation in South America. Santiago is a champion for free trade and multilateral cooperation. The Chilean government is aware its economic success has much to do with open markets and its efforts over the years to reach outward. They have an impressive collection of 26 free trade agreements in force, 16 of which are with fellow APEC economies. Seventy percent of Chilean exports go to the APEC region, and 60 percent of their imports and investments are from APEC. They are the largest suppliers of nectarines, blueberries and avocadoes to China, for example, and they hold a 70 per cent market share of fresh salmon fillets imported into the United States.
Chile’s success reflects APEC’s record of excellent growth over the past 30 years. The region’s GDP has more than quadrupled since 1989. This growth has been slowing down of late. A recent economic trends analysis by the APEC Policy Support Unit projected that the regions’ economy will grow at a decelerated pace of 3.8 per cent in 2019, down from 4.1 percent in 2018.
The slowdown can be attributed in part to uncertainties brought about by trade tensions and barriers, tariff hikes and counter measures. These are policies that will continue if left unchecked. If so, they may have an impact on supply chains and increase the prices of goods, affecting incomes and jobs.
A top item on the agenda in Viña del Mar was reaffirming APEC’s support for the rules-based multilateral trading system. President Pinera, whom I met with prior to this critical meeting, believes that APEC plays a strong role in revitalizing the World Trade Organization and in thrusting next-generation issues into the way world trade is planned and conducted.
Building on APEC’s work over the past decade, he is urging members towards policies focused on growth drivers beyond trade. While trade policy is important, so are policies that ensure more equitable distribution of economic gains, ease industries into environmental sustainability, and help governments and other institutions adapt to the disruptive nature of digital technology, and to apply this technology to enriching industries and lives.
These issues are what the world’s policymakers will be grappling with in the coming years. Current and future challenges stretch beyond the purview of a tariff match, and more economic cooperation, not less, will be needed for economies to weather them. To get started, I join President Pinera in urging leaders from APEC economies to come together in November to help revitalize trade and growth.