Obama's protectionist policies will harm Asia
Clinton's recent trip to Asia signals the region ranks high in new US
president's priorities
By Sanchita Basu Das
For the Business Times, Dated 25 February 2009
IN November 2008, Barack Obama's victory was greeted with high hopes and
expectations in most of Asia as it was believed that a black president would engage
the rest of the world, especially non-white and culturally diverse Asia, in dialogue
instead of taking unilateral decisions. He would be more consultative on the global
financial meltdown and may address the issues of globalisation with a refreshing
new approach.
Nevertheless, fears were expressed in many parts of Asia that the crowning of Mr
Obama would bring in protectionist measures in the United States. The wilting
demand from a rapidly deepening US recession has already resulted in bankruptcies
of many companies and millions of job cuts in export-dependent Asian countries such
as Japan, China, Vietnam and Thailand.
If protectionist trade policies are pursued to revive the US economy, production and
exports will further decline, thus creating great turbulence in Asia. This is especially
so because the external demand which helped the Asian economies come out of the
1997-98 financial crisis may not be there this time altogether. In terms of figures, as
at 2007, Asian exports (excluding Japan) accounted for 47 per cent of gross domestic
product, an increase of 11 percentage points from the comparable figure in 1998.
In addition, Mr Obama has openly spoken about keeping investments at home and
saving American jobs. During his election campaign, he pledged strong enforcement
of trade remedy laws, which can include added tariffs on imports that may hurt
American businesses.
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Mr Obama is also inclined to set strong labour and environmental standards in free-
trade agreements, which is viewed by many Asians as an excuse to protect US
companies from foreign competition. Observers agree that such unilateral
protectionist moves by the US will lead to a race for higher tariff by trading partners
and will exacerbate the current crisis. Moreover, a higher protection level will kill the
Doha Round objectives and also lead to a loss of the credibility of the
World Trade Organization.
Employment scene
Mr Obama's win could also dash the career hopes of many Asians. In 2008, the
economic crisis turned 2.6 million Americans into jobless citizens. The
unemployment rate hit a high of 7.2 per cent and there are fears that more Americans
may be laid off if the Obama administration does not take prudent steps. Hence in
order to restore confidence, Mr Obama promised to create 3.5 million to 4.1 million
jobs in the next two years. He also made strong statements against outsourcing jobs to
Asia, thus spelling bad news for the business process outsourcing and information
technology sectors.
This raised genuine concerns among Asians that the new employment opportunities
will germinate in the US at the cost of job cuts in Asia. The negative effect of such
protectionist steps could be significant, especially in the case of India and the
Philippines. Nearly 70 per cent of Indian software exports of US$40 billion are
destined for the US markets and of this, 40 per cent are used by US financial firms.
With the growth tapering off, Asia may witness higher poverty and income inequality
in the months to come. In the past few months, China witnessed about 20 million job
losses, and most of the workers went back to the countryside with little or no
employment expectation. Again, hundreds of workers are returning home to the
Philippines and Indonesia with waning foreign demand. These indicate that suffering
is likely to increase, accompanied by rising protests among the poor Asians. This is
already happening in Vietnam, where strikes are spreading like wildfire.
Earlier this month, Mr Obama succeeded in getting a US$787 billion package
approved by the House and the Senate, which contains spending programmes and tax
breaks designed to take the US economy out of the woods. Initially, the House bill
restricted spending to American-made iron and steel, while the Senate version went
even further, mandating that 'all manufactured goods' in construction projects come
from US producers.
However, Mr Obama came out against provisions that 'signal protectionism'. Indeed,
he has softened his stand considerably from the 'Buy American, Vote Obama' slogan
of his presidential campaign. But this could potentially lead to alienating the labour
support which was aided by the tough 'Buy American' stance.
A compromise worked out in the stimulus bill was to allow countries with trade
agreements to supply some goods. European nations, Canada and Mexico signed trade
deals that guarantee their ability to bid on US government contracts, with the
exception of transportation. China, India and many other developing nations haven't
signed those accords, and exports from these countries will be affected.
All this is bad news for both the US and Asia as it ignores the deep interdependence
that links the economies of the East and the West. It threatens to set retaliatory
responses around the world.
As Asian countries are also enacting their own stimulus packages, it is important that
they also remain receptive of an open economy to the world. Many industries in the
US, such as high-tech and aerospace, have significant dependence on other economies
of the world. Lobbyists for software makers warned White House officials in a
closed-door meeting last week that Mr Obama's plan to put medical records online
could be stymied by requirements that the software be US-made.
Significant move
In the light of this, US Secretary of State Hillary Clinton's recent visit to Asia carried
special significance. Her decision to travel to Asia as her first overseas trip
underscored the growing significance of the region and a desire to change the manner
in which the Bush administration approached the region. Her trip served as a signal
that Asia ranks high in Mr Obama's priorities. It also helped to somewhat allay the
regional anxiety in the face of the global economic crisis.
While Mrs Clinton may not have all the answers for the potentially damaging
protectionist provisions of the stimulus bill, she at least listened to the concerns and
would convey the message to Mr Obama.
The author is a visiting research fellow and the lead researcher for economic
affairs at the Asean Studies Centre, Institute of South East Asian Studies. These are
her personal views