With Friends Like the U.S, Who Needs Economic Foes?
(Bloomberg Opinion) -- President Donald Trump’s fusillades against China do more than simply exacerbate the country’s slowdown. They alienate long-time American allies in Asia, too.
The trade war could have been an opportunity to drive a wedge between China and its regional trading partners. If you’re going to pick sides, why not go with the economy that’s accelerating rather than slowing? Yet the Trump administration’s irreverence for the collateral damage of its actions might end up drawing China’s neighbors closer into its orbit. With friends like the U.S., who needs enemies?
Japan and South Korea are getting caught in the crossfire: Both racked up truly dismal numbers this week. Korean exports tumbled 11.7 percent in the first 20 days of May, with semiconductors down by one-third and shipments to China off 16 percent. Tokyo reported that exports dropped 2.4 percent in April, the fifth consecutive retreat and well in excess of forecasts by economists. Goods destined for China slid 6.3 percent. Semiconductors fell by more than 40 percent.
These statistics follow months of disappointing metrics related to trade and China, specifically. South Korea's economy shrank last quarter and may well now be in recession; the central bank warned Wednesday that its currency, the won, has fallen too rapidly. And while Japan's gross domestic product eked out an unforeseen increase in January to March, any optimism would be misplaced. The surprise bounce in machinery orders in March was largely outside key factory areas, says Capital Economics, and capital spending plans look anemic. The picture for either economy is unlikely to significantly improve anytime soon.
It didn't have to be this bad. Trump recently boasted that China's economy wouldn't overtake the U.S. on his watch – and he’s probably right. Most credible forecasts don’t anticipate the size of China's GDP passing America’s until around 2030. But that misses the point: The world’s second-biggest economy doesn’t need to speed past the U.S. to make its presence felt on economies everywhere, especially in Asia.
A common argument is that the White House would be much more effective in getting China to change its behavior if it enlisted the support of allies who also oppose Beijing's trade and industrial practices. But by actively hurting China, Trump is punishing America's closest friends, not just merely forgoing a degree of bilateral support. Trump is showing them just how dependent they are on a healthy Chinese economy.
Trump isn't the only actor in this picture. China's economy has been steadily slowing for a decade amid efforts to crack down on debt and financial excess. That was always going to translate into a few pinpricks for Japan and Korea. What's happening now resembles a broken limb.
None of this is going to get Japan or South Korea to flip allegiances tomorrow; there is a lot of historical baggage and security architecture binding them to Washington. But China's economic footprint in Asia isn't going to diminish; rather it’s almost certainly going to expand.
Trump’s actions have only reminded Japan and South Korea how much they need China now, even if its economy isn't bigger than the U.S.’s. Just imagine how bound they’ll be to Beijing when it is.
To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
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