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View all search resultsCan Asia and Europe rescue the global economy?
Rather than looking for separate hedging strategies, Asia and Europe would benefit more from collaboration
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United States President Donald Trump displays a signed executive order imposing tariffs on imported goods during a “Make America Wealthy Again“ trade announcement event on April 2 in the Rose Garden at the White House in Washington, DC. (AFP/Andrew Hanik)
C
ountries around the world are confronting the same confluence of shocks. The continued breakdown of the global trading system, owing to a volatile United States tariff policy, is now accompanied by the risk of disruptions to trade routes and oil production from military conflicts in the Middle East.
Moreover, concerns about the safety of dollar-denominated assets are growing, because US President Donald Trump’s “big, beautiful” spending bill is expected to erode the US’ already-weak fiscal position.
At the same time, the broad, geopolitically induced reshuffling of global supply chains continues, and the risk of climate and environmental breakdown has increased, especially now that the US has withdrawn from the Paris climate agreement again.
Given that everyone will suffer from these shocks, cooperation to ameliorate them should be a priority, especially for Asia and Europe. Both regions are heavily integrated into the global trading system, and both could be affected by the loss of US fiscal credibility.
Simply put, the recent shocks threaten the foundation on which Asian and European countries have built their economic models: Open trade, which itself is based on a rules-based system.
The US has gone from being a rule-setter to becoming a rule-breaker. For example, Trump’s misleadingly labeled “reciprocal tariffs” explicitly violate the most-favored-nation (MFN) principle, which prohibits any World Trade Organization member from maintaining different trade barriers for different countries except under a formal free-trade agreement. Trump has also violated the US commitment not to raise its tariff rates beyond WTO “bound rates”, another cornerstone of the global system.
Similarly, the US is undermining the dollar-centric system that Asian and European countries have long relied on for liquidity, trade financing and financial risk management.
