CHINA GLOATS AS TRUMP DUMPS THE PACIFIC TRADE DEAL

This article first appeared on the American Enterprise Institute site.

While many analysts are trying to predict Trump’s economic agenda—Tax cuts? Infrastructure? Deportations?—and its possible impacts, let’s not forget about the demise of the Pacific trade deal the Trans-Pacific Partnership (TPP). 

From the Economist: 

TPP’s collapse removes the main economic plank of Barack Obama’s much-hyped, largely abortive “pivot” to Asia. It leaves a gaping hole in the architecture of Asian commerce. And it adds to the strong headwinds that are buffeting global trade. …

On the basis of size alone, TPP would have been important, the largest regional trade deal in history. It encompassed 12 Pacific countries, including America, Japan and Canada (see chart). Together, they account for two-fifths of the world economy. But what made it all the more significant was its strategic intent.

Notably absent from the membership was China. Economically, this made little sense. Studies indicated that including China, the world’s biggest exporter, would have substantially expanded the benefits of TPP.

But America wanted to show that it could set Asia’s economic agenda. China might eventually have been invited to join TPP, but only after America had written “the rules of the road”, as its negotiators liked to say. Matthew Goodman of the Centre for Strategic and International Studies, a think-tank, considers its collapse a “body blow” to American economic policy in Asia.…

It is also a blow to the global economy. Over the years rich countries have cut tariffs to the point where the main obstacles to commerce now lie in regulations that discriminate against foreign companies. TPP took aim at barriers hidden in government-procurement guidelines and investment restrictions. It would have raised the bar for future trade deals, says Jayant Menon of the Asian Development Bank: “That’s where the biggest loss lies.…”

For Asia’s reformers, there is thus no getting around the disappointment of TPP’s demise. Vu Thanh Tu Anh, a Vietnamese economist, says that Vietnam had hoped to use the deal to pressure sluggish state-owned companies to shape up.

Shinzo Abe, Japan’s prime minister, viewed it as part of his programme of structural reforms, since it would have exposed coddled Japanese industries such as healthcare and agriculture to more competition. Even in China, liberal officials thought TPP might prompt the government to loosen its grip on markets in order to join one day.

Container boxes pile up at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai on September 24. James Pethokoukis writes that the “strategic intent” of the Trans-Pacific trade deal was underplayed during the election.ALY SONG/REUTERS

The “strategic intent” of the trade agreement and its geopolitical implications have been underplayed and under-discussed during the election season. But if your goal is withdrawal and pulling up the drawbridge, maybe that’s not so important.

Anyway, China seems delighted. From the Financial Times:

China has offered itself as the Pacific Rim’s lead advocate for free trade, as US President Barack Obama defended the remnants of what he had hoped would be one of his biggest policy legacies.

Mr Obama’s “pivot” to Asia, and the now-stalled Trans-Pacific Partnership trade deal that was supposed to be its economic backbone, have for years given the US a leadership role at the annual Asia-Pacific Economic Cooperation summit. But the election of Donald Trump, who campaigned on a protectionist platform and against Mr Obama’s TPP, has rewritten that formula.

But in public and private meetings APEC officials said the realities of a rapid shift in power to China following Mr Trump’s victory were apparent in Lima. “There is a different dynamic around the table. People are hedging their bets,” said one senior official.

James Pethokoukis is editor, AEIdeas and DeWitt Wallace Fellow at theAmerican Enterprise Institute.