‘End of globalisation’ biggest threat to APAC corporates: report

The potential end of globalisation is the number one threat to Asian companies, according to report from risk consultancy Control Risks. The report, which ranks the top five business risks for Asia-Pacific, states that the demise of globalisation, “at least as Asia-Pacific knows it”, will undermine the benefits the region’s companies have enjoyed in terms of trade, direct investment and supply chains. “The backlash in Asia-Pacific’s biggest two markets (Europe and US) against globalisation is the biggest threat to this region’s overall economic and political security during the next decade, never mind the next year,” states the report’s author Steve Wilford, senior partner in Control Risk’s global risk analysis team. The uncertainty over globalisation has been sparked by both the Brexit vote in the UK and, more acutely, the recent inauguration of Donald Trump as US president. Risk managers with international companies across the Pacific Rim will need to start drawing up a whole range of new scenarios for their companies, after Mr Trump signed an executive order to withdraw the US from the Trans-Pacific Partnership (TPP), ushering in a new era of protectionism. The TPP was a trade agreement signed between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. Under the deal, some 18,000 tariffs (taxes on imports) would have been removed, including tariffs on US manufactured goods and almost all US farm products. To take effect, the deal needed ratification by February 2018 by at least six countries that account for 85% of the group's economic output. The US would have needed to sign to need to meet that last condition. Efforts are underway to try and salvage the deal without US participation. But Japan's Prime Minister Shinzo Abe has said that a TPP without the US would be "meaningless". President Trump said that pulling out of the TPP is a "great thing” for the American worker. White House spokesman Sean Spicer said President Trump’s new administration will now focus on bilateral trade agreements in the Asia-Pacific region. The Nikkei Asian Review reported that the US may now seek a bilateral free trade deal with Japan. This will be important as Japan still provides some 10% of total US imports and its trade deficit with the country is some $70bn, the third largest after China and Germany. The Nikkei reported, however, that Japan is wary of signing a free trade agreement with the US. The Trump administration may demand, for example, that Japan lower its tariffs even further than stipulated under the TPP. There are also fears that the failure of the TPP will enable China to assume an even greater role in shaping regional trade rules. One of the reasons why former US President Barack Obama was so keen on the TPP was its potential to act as a balance to China’s rising power in the region. Interestingly, however, Australian trade minister Steven Ciobo said after President Trump’s order was signed that the pact could be saved by encouraging China and other Asian nations, such as Indonesia, to join. "Certainly, I know Indonesia expressed a possible interest and there would be scope for China if we were able to reformulate it," Mr Ciobo told the Australian Broadcasting Corporation. President Trump rapidly followed up his decision to ditch the TPP with a direct attack on Japan, by accusing it of engaging in unfair practices on auto imports and exports. The new President seems to be warming up for a feisty meeting with Japanese Prime Minister Abe, which could happen next month. As the Nikkei pointed out, Japan imposes no tariffs on US-made cars but the US levies a 2.5% import tax on Japanese vehicles. US auto manufacturers, however, argue that environmental regulations in Japan and other rules limit their access to the massive market. Ford exited Japan last year. President Trump also threatened to impose a “very major” border tax on US companies that decide to relocate production out of the country, calling for greater investment in the US. He promised to cut the corporate tax rate to 15%-20% and to scrap at least 75% of existing regulations to help make this happen. The Control Risks report ranks territorial tensions as its number two risk for the region, citing the various disputes over islands in the South China Sea. Again, uncertainty over US foreign policy in the region and an ambivalence to actively police the current tensions, is making it difficult to accurately judge the likely risk. As Mr Wilford states: “We are already seeing the likes of Philippines attempting to hedge against this US uncertainty by moving closer to China. Providing China doesn’t seek to flaunt its territorial expansion, tensions in the South China Sea may actually decline, but divisions within ASEAN are likely to increase.” The third risk cited by Control Risks is populism and performance legitimacy – notably the strategies deployed by President Rodrigo Duterte in the Philippines, Prime Minister Najib Rezak in Malaysia and Prime Minister Nehandra Modi in India. China’s regulatory regime and the fallout from fragmentation of IS in Iraq and Syria make up the final two risks highlighted in the report. In terms of the latter threat, however, Mr Wilford states that “relative to the havoc caused by terrorism in the Middle East and Europe, Asia’s terrorism and risk landscape has been considerably more benign”.

‘End of globalisation’ biggest threat to APAC corporates: report

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