What’s Next For Asia After Trump’s America Leaves TPP?
US President Donald Trump signs an executive order alongside White House Chief of Staff Reince Priebus (R) in the Oval Office of the White House in Washington, DC, January 23, 2017.Trump on Monday signed three orders on withdrawing the US from the Trans-Pacific Partnership trade deal, freezing the hiring of federal workers and hitting foreign NGOs that help with abortion. Photo credit: SAUL LOEB/AFP/Getty Images
Under the “America First” banner, Donald Trump’s inner circle of trade advisers have dialed up a simplistic formula of protectionist tariffs, import restrictions and corporate intimidation—all of which figure to disrupt global supply chains.
For America, the Trans-Pacific Partnership – arguably the most progressive multilateral trade agreement in modern history, is dead and buried. But just because the Americans have left the party, that doesn’t mean everyone else needs to go home. What remaining members appreciate about the TPP is that it takes into account the needs of a digitized, hyper-connected global economy.
The big question is: what happens next for Asia?
Two fundamental narratives are emerging regarding trade and geopolitics in the region. First, regarding international trade, it’s widely assumed (incorrectly) that now that the U.S. has pulled out, the TPP is dead and buried. Second, as the U.S. becomes increasingly inward-looking and disengaged from international commitments, conventional wisdom argues that a rising China will fill the vacuum (true) and exert greater influence in Asia and beyond. This second narrative will involve escalating tensions and growing uncertainty.
More importantly, the TPP provides a much-needed modern framework of rules, including transparency standards, intellectual property protection, simplified rules for small businesses and much-improved requirements for state-owned enterprises. All of these attributes make the TPP an FTA worth fighting for, particularly in Asia, where globalization will continue to bring benefits to a growing middle class and the world’s most dynamic new markets.
In its current state, the TPP can come to fruition only if it’s ratified by six countries comprising 85 percent of the group’s total GDP. Because the U.S. accounted for 60 percent, it’s widely assumed that American withdrawal finished off the trade pact. However, the Australians, Japanese and Singaporeans want to change this. With the full support of all the remaining parties, these key members are exploring ways to push ahead without the U.S.
There’s reason to hope. Even though the U.S. has withdrawn from the agreement, its market will remain open to trade with the remaining TPP members under the WTO’s most-favored-nation status. The American market already embraces the standards inscribed in the TPP– from labor rules to intellectual property protection– so this should reinforce the adoption of these same standards elsewhere.
The TPP versus Bi-lateral Agreements
Mr Trump’s trade advisers are keen to putting an end to “lousy trade deals’, and, instead, plan to renegotiate a series of “one-on-one” bilateral free trade agreements. This will presumably give the White House better leverage over its trading partners and allow for quick punitive action when one of them steps out of line with the “America First” policy.
On this perspective, however, the remaining TPP members will part ways with Washington. As trading nations have learned, it’s easier to manage business under a multilateral, harmonized system than it is to try and deal with a mishmash of different rules, regulations and procedures from many different countries. A small or medium-sized manufacturer in Singapore with a global supply chain doesn’t want to have to manage compliance with twelve different kinds of rules-of-origin, under twelve separate bilateral trade agreements. This tangled mess of bureaucracy would discourage even the most courageous small or medium size enterprise (SME) from participating in an FTA. Asian countries understand this. Thus, they prefer to resuscitate the TPP– minus the U.S.– rather than abandon it entirely. According to the Malaysia government, the eleven remaining members of the TPP are planning a meeting to discuss next steps.
The Rise of China
As for geopolitics, things are lining up nicely for Beijing. Washington’s self-inflicted fall from grace is making China look like an increasingly stable bet for America’s regional partners, particularly the ASEAN nations.
And if the U.S. does go ahead with 45 percent tariffs against a swath of Chinese products, the effects will ripple across Asia, affecting all the firms that supply materials, parts and components to China’s processing and assembly sectors. There doesn’t figure to be a lot of sympathy for Washington if this happens.
Key stakeholders are losing hope that proactive and responsible U.S engagement with Asia – economically and otherwise— will continue to provide a healthy countermeasure to Beijing’s growing assertiveness. Even without the U.S., however, the “TPP-minus-one” could provide a “framework” of rules as an alternative to the more opaque, less inclusive China business model.
American and Western firms will eventually be grateful for this, as more will relocate value chains to Asia, primarily to access large and expanding consumer markets. Other firms will leave the U.S. because ill-conceived Trumpian trade policies will have put them at a competitive disadvantage. It will be good to have a functioning, rules-based trading framework waiting for them when they arrive.
Beijing has its own multilateral free trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which, although it hasn’t yet been finalized, will create the world’s largest multilateral agreement. The RCEP will accelerate regional and global trade, particularly on the One-belt-One-Road (OBOR). Western firms will want to be positioned to partake in this—and the TPP would be a useful springboard.
If the TPP collapses altogether, and Washington continues to alienate its long-time partners, China’s place as the economic hegemon in Asia will be virtually assured.
In one final ironic twist, at the recent World Economic Forum, in Davos, president Xi Jinping announced that China was ready to take up the mantle as the world’s new champion for free trade. While China has a long way to go before it becomes an open, fair and transparent market, it seems to be moving in the opposite direction as the Trump administration.
If Washington continues its nosedive into populist escapism, perhaps Beijing will one day be in a position to takeover leadership of a new TPP.