Of politics, trade and friendshoring

THERE are warning signals for Malaysia in US President Joe Biden’s move to steeply hike tariff rates on certain imports from China last week. With protectionist tendencies rising in a landscape where populist policies or measures help woo voters, such targeted tariffs could widen to other countries.

Biden, who faces an election this November against another geriatric, is facing pushback from much younger voters opposing his support of Israel in its ongoing conflict with Hamas and this is an opportunity to wrangle votes from crucial swing states such as Pennsylvania and Michigan, where jobs have been lost to globalisation and China’s push to become an export powerhouse.

In the EU, which will undergo an election for the European Parliament next month, populist and far-right parties are also expected to make gains, which will influence EU-wide laws as well as international agreements.

Trade tensions have been rising between the bloc and China, and over the same issues that the US has — China’s ability to produce cheaply because of state support and then dumping goods at much lower prices to gain market share.

France’s President Emmanuel Macron and the EU’s head honcho, Ursula von der Leyen, had brought up trade matters during President Xi Jinping’s recent visit to Europe. There are now concerns in the US side that more Chinese companies, in a bid to avoid the tariff hikes, will set up production in other countries.

This is in addition to foreign investors moving part of their production out of China in the past decade under the China+1 strategy, the shocks caused by Covid-19 and escalating US-China tensions — a practice called “friendshoring”.

A number of South-East Asian countries, including Malaysia, Thailand and Vietnam, have benefitted from these moves out of China. Mexico, due to its proximity to the US, has also been a major beneficiary.

The question is whether Washington’s gaze will now be drawn to countries where Chinese companies already have a manufacturing presence and what, if anything, can the US do?

According to a Reuters report, Mexico, which has overtaken China as a source of imports into the US, may have become a transshipment hub for Chinese goods to avoid tariffs. The US Trade Representative believes there is a developing “fact pattern” over the Mexico issue and that the US would look at how it can address this problem.

On another front, the US International Trade Commission (USITC) has also determined that there is a reasonable indication that imports of boltless steel shelving units from Malaysia, Taiwan, Thailand and Vietnam are affecting a homegrown industry. The USITC said these products are sold at less than fair value and are subsidised by the governments of these countries.

There is also a push by several US solar panel manufacturers for new tariffs on imported photovoltaic cells from South-East Asia. Petitions were filed seeking duties on cells and panels from suppliers from Cambodia, Malaysia, Thailand and Vietnam.

Bloomberg reports that the USITC will consider these petitions, with antidumping and countervailing duties to be imposed in as little as four months should solar panel makers in these countries be found to have been unfairly subsidised and selling products at below-cost.

The main recourse for such matters is the World Trade Organisation’s (WTO) dispute settlement system. Under WTO’s Uruguay Round agreements, there is an annex detailing how governments can bring their trade disputes to the dispute settlement body, which administers the rules and procedures and has the authority to establish or adopt panels and appellate body reports.

The WTO rules emphasise prompt settlement, so it operates under strict deadlines. According to the WTO, panel proceedings should take no longer than 12 months.

Countries whose products are the subject of anti-dumping duties can argue that the measures are against fair trade practices versus protecting against unfair trade practices. There is also the argument that antidumping measures are really just political play, but this may be difficult to prove or establish.

The steep tariff hikes imposed by the US are actually a reflection of what Unctad, in its December 2023 update on global trade, regards as an uptick on trade restrictive measures across the world that makes the outlook for 2024 “highly uncertain and generally pessimistic”.

Other factors weighing on the outlook include geopolitical tensions, escalating debt, and widespread economic fragility.

Unctad also noted that global trade patterns are increasingly influenced by geopolitics, with countries showing preferences for politically aligned trade partners through friendshoring.

This article first appeared in Star Biz7 weekly edition.