The election of Donald Trump and the demise of the proposed Trans Pacific Partnership (TPP) free trade agreement has unleashed a flood of anxiety-ridden commentary about how China will now seize leadership in Asia and how Trump may launch devastating trade wars that might lead to real wars.
This is mostly nonsense. The notion that the TPP was going to ensure America’s everlasting hegemony in Asia and keep China from spreading its wings was always ridiculous and unfounded. On the one hand, the TPP was never going to change the fundamental alignment of forces and influence in Asia. The United States has been and will, under any circumstances, remain the major buyer of Asian goods. Some note that China is now the biggest trading partner of most Asian countries rather than the United States. But this simplistic glance at statistics ignores the actual pattern of trade flows. Much of what the rest of Asia sends to China is simply assembled there and then sent on to the United States. The major end market is still America. So, in actuality, America remains the biggest trading partner for most Asian countries.
But even if that were not the case, the TPP would not have changed the pattern or the flows. Negotiators bragged of reducing tariffs on 18,000 items. But tariffs have not been significant barriers to Asian exports to America or to American exports to Asia for a long time now. Thus, a reduction of tariffs on 18,000 items from say four percent ad valorum to three or two percent sounds big, but it is essentially meaningless. The rest of the provisions, like lengthening periods of intellectual property protection, forcing countries to allow independent labor unions, and regulating the activity of state owned enterprises were never going to have much affect on trade volumes or patterns and were, in any case, largely unenforceable as a practical matter. I mean, really. Did anyone truly believe that communist Vietnam would allow independent labor unions? Or that the United States could and would take some retaliatory action if it determined that Vietnam had not kept its commitment? Did anyone even have any idea of how the U.S. might determine if Vietnam’s labor unions were truly independent?
It is also important to keep in mind that the TPP was actually not very much about Asia, even though it was presented as such. The only Asian countries involved were Singapore, Brunei, Malaysia, Vietnam, and Japan. Of those, only Japan has a significant economy, and its negotiation could just as easily have been bi-lateral between the U.S. and Japan. Of the 750 million people encompassed in the area of the proposed TPP, 500 million of them were in the Americas. Given that Japan is already a strong ally of the United States, it was always hard to see how the U.S. was going to assert power in Asia by doing a deal with Brunei, Singapore, Malaysia, and Vietnam.
Recent commentary has argued that China will now seize the initiative with its proposed Regional Comprehensive Economic Partnership (RCEP). But that negotiation has been going on for a long time and was pursued by all the Asia-Pacific countries that were involved in the TPP negotiation. The RCEP talks include: China, Japan, South Korea, Philippines, Singapore, Malaysia, Vietnam, Indonesia, Australia, New Zealand, Cambodia, Laos, Myanmar, and India. It has long been expected that this deal would be realized even if the TPP were eventually ratified. In other words, the TPP was never going to stop this deal from being done.
It is also essential to understand that the nature of the trade flows and the structure of world trade is such as to automatically tend toward reducing the significance of the United States to many Asian countries. As production has been off-shored from the United States over the past 35 years, Asia has become the world’s great workshop. Initially, parts and components were made in Asia that were shipped to the United States for incorporation into sophisticated equipment. But now China has become the major industrial producer, and the other Asians ship raw materials and parts and components to China. China then ships finished products to the U.S. and the EU, and increasingly to Japan and Korea. The tendency of the TPP would have been actually to facilitate these trends. By making it safer for U.S. producers to offshore more of their production, the TPP would only have resulted in more Asian production going to China and thence to world markets.
There is, however, a counter trend that may work against the RCEP being very effective, but this trend is being generated in China, and the TPP would not have strengthened or weakened it. It has to do with the continuing emphasis by China on absorbing ever more of the value chain within China. In other words, in the past, China gathered advanced components from Korea, Singapore, and Malaysia and assembled them into finished products. Increasingly, however, China is producing the advanced components itself. It only now needs raw materials from the likes of the Southeast Asian nations and from Australia and New Zealand. Thus the RCEP is not going to be a great boon to any of its members, and it’s not going to increase the exports of other Asian countries to China.
Indeed, the rest of the Asian countries are going increasingly to be unhappy with the impact of China, and if they want, voluntarily, to further open their markets to American goods and services, there is nothing stopping them from doing so.
