In attempting to address uncertainties presented by the global economic climate through the era of possible shifting diplomatic relations – as well as changes in fiscal, monetary and foreign policies, this chapter seeks to highlight how amicable trade relations can still be facilitated as a means of preserving global financial stability. In so doing, it contributes to the extant literature on the topic by introducing innovative means of addressing current research problems and emerging areas of research – as well as highlighting those areas which currently constitute focal points of study.
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Challenges Arising From Protectionism
The following events had served as indicators of an impending global age of protectionism – a phenomenon, which even if evident, rife and still on the cards, has not materialized as expected (Financial Times, 2016):
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The attacks which occurred on the 11th September – which had been anticipated to serve as an impediment to globalization;
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The recent global financial crisis which served as a stimulus for many governments to resurrect trade barriers which are reminiscent of those of the 1930s;
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Trade wars which have arisen in relation to “destructive games of competitive currency devaluations.”
In illustrating “the potential economic consequences of an increase in protectionism”, an IMF report and study (IMF, 2016) reveals the following:
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The implications of a unilateral increase in tariffs by one country on another country - as well as the consequences of retaliation by the second country – with the model simulations illustrating how GDP, consumption, and investment of both countries are negatively impacted by the unilateral tariff increase.
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A second scenario which illustrates the implications for the global economy of a generalized increase in protectionism, taking the form of higher tariff and nontariff barriers – with results which indicate 1) collapse in trade flows, as well as 2) a sharp decline in global output.
The negative repercussions for the global economy, it is further added, could be even larger because “the disruption in international economic linkages drive a more generalized decline in cross-border cooperation.”
Even though Asia, to a larger extent, has not been affected by the risks and uncertainties that have threatened global stability recently – primarily resulting from events attributed to declining oil and commodity prices, as well as uncertainties revolving around policies of the incoming United States administration, there have also been cause for concerns that reforms which sustain vital regulatory, monetary and labor policy frameworks are implemented and cautiously monitored and updated.
Background To Literature And Focus: The Trans-Pacific Partnership And Global Risk Uncertainties
The Trans-Pacific Partnership, however, is not the only trade agreement which has failed to fulfil its ratification by the United States Congress. Other protectionist waves – namely those arising in relation to Europe, have witnessed growing difficulties, protests and challenges to efforts aimed at mitigating barriers through the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union.
Hence, in addition to earlier observations made by the International Monetary Fund that GDP, consumption, and investment of trading countries are negatively impacted by unilateral tariff increases, as well as implications for the global economy of a generalized increase in protectionism (collapse in trade flows, as well as sharp declines in global output), amongst other concerns and far reaching consequences, the erosion of the United States leading economic role being consequential of a failure to conclude the current Trans Pacific Partnership, have also been identified as major concerns.
Even though the Trans Pacific Partnership was considered to be a channel through which U.S.- China Relations can be sustained, given the avenues and opportunities available to forge a commanding presence in Asia – as well as consolidate on its relationship with other Asian nations, notably close Chinese allies, it is also argued (IMF, 2016) that failure to finalize the Agreement would be welcomed by the Chinese.