Not quite dead: how Trump-spurned TPP could be resuscitated
On January 23, just three days after entering the White House, true to his populist campaign rhetoric, Donald Trump signed an executive order to withdraw the United States from the Trans-Pacific Partnership (TPP). With that order, the new president in effect pronounced the mega-regional trade deal, which had been on life support for months, dead. This is because, without the US, which accounted for three-fifths of the 12-member pact’s combined gross domestic product, the deal was seen as lifeless.
Or, in the words of Shinzo Abe, the prime minister of Japan, the TPP’s second-biggest economy and one of its most ardent proponents, the pan-Pacific trade deal would be “meaningless” without US participation.
After Trump’s fateful decision and Abe’s initial admission, many thought that the massive deal – covering Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam and encompassing around 40% of the global economy – would be soon buried.
Yet four months later, the Pacific Rim agreement is showing new signs of life. In fact, judging by some of the latest developments, there is a real chance that it will be resuscitated.
For instance, after holding talks on the sidelines of an Apec (Asia-Pacific Economic Cooperation) meeting in Hanoi on May 21, the trade ministers from the remaining 11 countries – now referred to as TPP-minus one (the US) – issued a statement in which they “reaffirmed the balanced outcome and the strategic and economic significance of the TPP”.
They highlighted “its principles and high standards as a way to promote regional economic integration, contribute positively to the economic growth prospects of its member countries, and create new opportunities for workers, families, farmers, businesses and consumers”.
As they “agreed on the value of realizing the TPP’s benefits”, the 12-minus-one trade ministers “agreed to launch a process to assess options to bring [it] into force expeditiously”, said the text.
They also tasked their trade officials to carry out and finish this assessment before they meet on the margins of the Apec summit in Da Nang, Vietnam, on November 10-11 and “underlined their vision for the TPP to expand to include other economies that can accept [its] high standards”.
In their views, these “efforts would address our concern about protectionism, contribute to maintaining open markets, strengthening the rules-based international trading system, increasing world trade, and raising living standards”.
Though the ministers stopped short of stating an immediate and unequivocal commitment to implement the deal, the joint communiqué gave key reasons, after months of reluctance, the remaining TPP signatory members are, to varying degrees, willing to pursue it without the US.
The country that definitely wishes to get the agreement implemented is Japan. Unlike his pessimism and surrender last November and after Trump’s official decision to dump the deal, Abe and his government have lately proactively sought to make the TPP a reality with or without Washington’s involvement.
Worries about China’s growing economic and strategic influence in the region is a key factor behind Tokyo’s about-face.
Australia and New Zealand are two other countries that have spearheaded efforts to salvage the agreement. They may have the same concern.
Beijing recently held a grandiose international forum on its Belt and Road Initiative (BRI). The initiative, aka “One Belt, One Road” (OBOR), is seen as a strategy for the Asian giant to lure other countries, notably smaller and weaker ones, into its orbit, thereby advancing its regional influence and hegemony.
Like Abe, Australian Prime Minister Malcolm Turnbull and New Zealand Prime Minister Bill English did not attend the Belt and Road summit in Beijing on May 14-15.
Countries like Vietnam enthusiastically joined the TPP because they wanted to avoid economic over-dependence on their giant neighbor.
In fact, the pact, which excludes the world’s second-biggest economy, was originally seen as aiming at limiting China’s economic omnipotence and, consequently, its dominance in shaping the economic order in the Asia-Pacific region.
Touted as a “21st-century trade agreement” or a new “gold standard” for global trade, the massive deal is much more comprehensive and advanced than the China-backed Regional Comprehensive Economic Partnership in terms of regulatory standards and areas covered.
Unlike the tariff-cutting RCEP, which includes 10 members and six dialogue partners (Australia, China, India, Japan, South Korea and New Zealand), the TPP contains labor regulations and protections for the environment and intellectual property rights.
These could be the reasons the trade ministers of the 11 remaining states emphasized its “strategic significance” and hailed its “high standards”, calling it a “comprehensive, high-quality agreement”.
However, many of the TPP signatories, notably smaller and export-led economies such as Vietnam and Malaysia, participated in the pact partly – if not mainly – because they wanted to gain greater access to the United States’ huge market. Undoubtedly, without US participation, not only the strategic importance but also the economic value of the agreement will be considerably diminished. This is why, unlike Japan, Australia and New Zealand, some smaller countries are somewhat reluctant to proceed.
Nonetheless, even without the engagement of the US, the group’s biggest economy, the deal still promises substantial economic benefits. One reason for this is that free-trade agreements generally foster cooperation, integration and, consequently, prosperity, opportunity and stability, while protectionism tends to cause the opposite effects and consequences.
Indeed, as highlighted by the trade ministers of the 11 remaining members, a comprehensive trade agreement with “high standards” such as the TPP would definitely generate such benefits.
A specific reason they would still largely gain from the deal even without the US is that their economies do not compete but rather complement one another. Less developed and poorer members, for instance Vietnam and Malaysia, could export their labor-intensive merchandises, such as garments and footwear, to more advanced and richer ones, such as Australia, Canada and Japan, while importing high-technology products from the latter.
Another reason the remaining 11 states are now more optimistic and willing to get the deal approved and implemented is their hope that the Trump administration may reconsider its posture. This is not a vague hope, especially if they are united and determined to go ahead with the TPP.
At the Apec meeting in Hanoi, Robert Lighthizer, Donald Trump’s newly appointed trade chief, said Washington “is not going to change” its decision to leave the group. Though that is quite a firm statement, it does not mean that the US president will not backtrack.
Since taking office, the 70-year old leader has flip-flopped on many of his key foreign-policy stances because he has realized that many aspects of his nationalist, protectionist and isolationist “America first” doctrine will not “make America great again” but rather diminish its global influence and power. The TPP, together with the North American Free Trade Agreement, is one of only a few issues on which Trump’s posture has not shifted yet.
Sooner or later, it is likely that the Trump administration will realize the TPP’s economic and strategic benefits and, consequently, reverse its decision to pull the US out of the pact.
For instance, a Financial Times article on May 3 referred to estimates by Peter Petri and Michael Plummer that under the TPP, the US economy would be 0.5% or US$131 billion bigger by 2030, while China’s economy would be 0.1% or $18 billion smaller, as trade diverted to the US-led bloc.
In contrast, according to the estimates of these two academics, the RCEP would bring about the opposite results. China’s economy would expand by an extra 1.4% – or an additional $250 billion in output –while the US economy would be slightly smaller thanks to the diversion of trade to the China-led partnership.
Against this background, there is a great chance that by the time he goes to Vietnam for the Apec summit at the end of this year, Trump may embrace the deal.