Regionalism vs Protectionism: Looking Ahead to 2019

The year 2018 was marked by the escalation in trade tensions among the world’s largest economies, mostly via bilateral trade restrictions. This was partly compensated by the advances in regional economic integration, particularly among the countries of the Global South, with the African Continental Free Trade Area (AfCFTA) being one of the most important advances in this area. There is far more to come in 2019 in terms of regional economic integration, which is becoming the main neutralizing factor for protectionist pressures in the global economy. In particular, China is now emerging as one of the champions of trade integration and economic openness, with the Regional Comprehensive Economic partnership (RCEP) potentially being the largest megablock that could be launched in 2019. Furthermore, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership ("TPP-11") comes into force on December 30, 2018, with significant liberalization impulses unlocked in 2019 on the back of the implementation of this agreement.

While regional trading arrangements were long suspect of being potential stumbling blocks to globalism and multilateralism, in the current environment characterized by mounting protectionist pressures, regionalism may turn out to be one of the very few viable options in delivering liberalization impulses across the global economy. Indeed, this is precisely the pattern observed in the Trump era of rising trade barriers from the US – trade agreements are being reconsidered in the direction of greater protectionism (as is the case with the Transpacific partnership, NAFTA as well as trade bilateral agreements between the US and China), which is in part compensated by new regional integration agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as well as the Regional Comprehensive Economic Partnership (RCEP). 

In a world where global institutions prove to be too weak in the face of rising protectionist pressures regionalism sustains the momentum in parts of the global economy towards greater openness and trade liberalization. In effect, the countries that launch protectionist policies lose the edge in forming and expanding their alliance networks even as other parts of the globe forge ahead with the formation of ever greater trading blocks. Accordingly, when global trade rules fail, the changing combinatorics of regional alliances can put pressure on the protectionist countries to change policy course for fear of not falling behind in the race to build extensive networks of economic partnerships. In other words, countries affected by protectionist policies can structure bilateral and regional alliances in such a way as to put pressure on protectionist countries to change the policy stance and in the longer term this may turn out to be a heftier cost for the protectionist countries than the counter-measures in the form of reciprocal protectionism. 

The positive impact of regionalism on the world economy would be even further enhanced if its evolution were not as haphazard and devoid of coordination among its various constituent parts. The lack of coordination among regional integration arrangements could be addressed at the global level via creating a comprehensive platform of regional governance that brings together all of the main regional integration arrangements. This new regional layer of governance may replicate some of the coordination mechanisms enforced among nation states. 

There may also be a case for a set of core principles that would govern the operation of this regional platform of cooperation: 

-       Mutual recognition

-       Representation in global organizations

-       Non-interventionism

-       De-politicization

-       Possibility of mutual representations/embassies 

The formation of a common regional platform may also be accompanied by an agenda for global governance that may target the following priorities: 

-       Dispute settlement among regional blocks and their members

-       Connectivity among the regional blocks pertaining to the same region/continent

-       Financial crisis resolution – leveraging the resources of the regional financing arrangements (RFAs) to promote a regional resolution to the crisis and promote pan-regional measures to reduce economic vulnerabilities

-       Security issues – promote greater security in coordination with global institutions

-       Financial market regulation

-       Cooperation on migration issues

Ultimately, in the face of mounting protectionism regional impulses of trade liberalization will need to be also supported by the reinforcement of the multilateral framework of the WTO. Members of G-20 are preparing to advance proposals on revamping some of the key aspects of WTO operations, including the dispute settlement body as well as the scope and coverage of the global organization with respect to regional integration arrangements. The hope is that in 2019 the realization of the economic costs of protectionism – including increasing market volatility, stock market declines, rising recession fears – will also lead to a reassessment of economic priorities amongst the largest players of the world economy.


Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.