On Monday, Jan. 23, President Donald Trump used his first full weekday in office to sign an executive order pulling the United States out of the Trans-Pacific Partnership free trade pact. The TPP was signed by all 12 parties – representing almost 40 percent of the global economy – last February, but President Obama did not present the pact to Congress for ratification before the end of his term as President. Thus, with Monday’s order, Donald Trump has effectively ended the prospect of American partnership in the deal for at least for the next four years. According to Trump, this order is “a great thing for the American worker,” and press secretary Sean Spicer has hinted that renegotiation of the North American Free Trade Agreement will soon follow.
It is not yet clear whether this radical departure from years of presidential free trade initiatives will translate into a period of outright protectionism, or whether Trump will simply use the threat of such measures as a hardnosed negotiating tactic designed to extract new concessions from U.S. trading partners. Either way, the TPP’s 11 other members – including Japan, Canada, and Australia – must now decide whether the pact is worth saving, even without the world’s largest economy.
The Trans-Pacific Partnership is one of the largest free trade agreements ever conceived. Its finalization in New Zealand on Feb. 4, 2016 promised to reduce trade barriers among 12 Pacific nations, which collectively represent 40 percent of the world economy. However, the deal’s provisions must be ratified by each country and, on Monday, Jan. 23, President Donald Trump signed an executive order to abandon the pact.
Most experts claim that this failure to ratify TPP not only deals proponents of American and global free trade a crushing blow, it also threatens to throw U.S. alliance structures and the legacy of President Barack Obama’s “rebalance” toward the Asia-Pacific region into disarray. Are such dire predictions accurate, and what does that failure mean for the future of both American trade and security relations in the Asia Pacific?
In order to understand the ramifications of withdrawing from the TPP, it is important to recognize how different the TPP is from other major trade agreements. On its face, this is a classic free trade agreement, which by lowering tariffs and trade barriers in nearly half of the global economy, could raise GDP in member countries by an average of 1.1 percent and increase trade 11 percent by 2030, according to the World Bank.
However, it is the provisions of the agreement that truly set it apart. These include the liberalization of e-commerce and data flows, which would prohibit members from requiring data centers to be located within their countries; standardized intellectual property rules; improved transparency and fairness requirements for state-owned enterprises; and beefed up dispute settlement arrangements for labor and environmental regulations – through an Investor-State Dispute Settlement system.
Finally, the TPP is designed to be an “open agreement,” providing clear channels for accession to the deal. According to Senior Fellow at the Peterson Institute for International Economics (PIIE) and The Cipher Brief expert Gary Hufbauer, these provisions together “are enough on the frontier that, if enacted, it’s the new template for world trade. Simple as that.”
This role as a global trade standard is what makes the agreement unique. It is also one of the main arguments used by national security experts and policymakers – most notably in an open letter signed by eight former U.S. defense secretaries – to explain how vital the TPP is to American alliances in the region. Essentially, they argue that by setting new rules of the road for global trade, the TPP will have the dual effect of both stitching allies closer to the United States and forcing China to either lose out on the trading bloc’s many benefits or make the tough liberalizing reforms necessary to enter it. On the other hand, says Hufbauer, failure to ratify the TPP is “a diplomatic and geopolitical gift to China. [Though] whether they will be able to grasp it remains to be seen.”
Yet, to critics like Clyde Prestowitz, President of the Economic Strategy Institute, such warnings are “mostly nonsense.” He argues that the actual tariff reductions called for in the agreement are so small as to be “essentially meaningless,” while the rule-setting aspects of the TPP, which dictate new international norms on things like state-owned enterprises are “largely unenforceable as a practical matter.” Meanwhile, critics of deal believe that its geostrategic importance is overblown. To Prestowitz, Japan is the only meaningful Asian partner in the TPP, and negotiations with Tokyo could “just as easily have been bilateral,” a sentiment loudly shared by Trump.
However, the Japanese do not agree. “For us,” says Yorizumi Watanabe, former Deputy-Director General of the Economic Affairs Bureau in Japan’s Ministry of Foreign Affairs, “the idea of replacing the TPP with a bilateral deal is a non-starter.” Not only would renegotiating the deal bilaterally be redundant, it is also far less attractive for Tokyo and other Asian partners to make such piecemeal agreements with the United States. As Watanabe explains, this is “because Asian production networks are so integrated” and plurilateral free trade agreements work better in such an environment.
What’s more, he believes that the TPP can play an invaluable role as the leading force for increased trade liberalization in the Asia-Pacific, especially where China is concerned. Instead of containing Beijing, Watanabe believes that if TPP moves ahead, deals like the Regional Comprehensive Economic Partnership, an alternative arrangement that includes China (unlike TPP), but not the United States “will be stimulated to move their own liberalizations forward,” thus urging China to become a more responsible stakeholder in the region. For Japan and the other members of the putative agreement, says Watanabe, “it is truly a great loss if the United States does not follow through with ratifying this deal.”
However, Trump has now done just that. Trade optimists hope that he might eventually put his campaign promises aside once in office and participate in free trade agreements like the TPP after some cosmetic changes and rebranding. However, at this point, Trump’s actions seem to be matching his protectionist campaign rhetoric. Now the looming question is, as America steps back from the TPP, who will rise to take up the mantle of free trade in Asia?
This article was adapted from analysis by The Cipher Brief published on Dec. 13, 2016.
Fritz Lodge is an international producer at The Cipher Brief. Follow him on Twitter @FritzLodge.
