Donald Trump has effectively killed the Trans-Pacific Partnership by saying the US will not ratify it. China is rubbing its hands.
Having smashed almost every electoral convention during the campaign, Donald Trump was unlikely to fall into line after securing victory. So it has proved. Other candidates might have used a press conference to outline their priorities. Mr. Trump opted for social media.
“My agenda will be based on a simple core principle, ‘putting America first’,” he declared in a YouTube video on November 22. “I am going to issue a notification of intent to withdraw from the Trans-Pacific Partnership, a potential disaster for our country. Instead we will negotiate fair bilateral trade deals that bring jobs and industry back on our shores.”
If Mr. Trump follows through, he will thrust a knife into Barack Obama’s signature foreign policy: the ‘pivot to Asia’. As Mr. Obama envisaged it, the pivot would be as economic as it was military and diplomatic. The Trans-Pacific Partnership (TPP), the largest trade deal in the world, would be its crowning glory.
The deal was designed to create a single market accounting for 40% of the world’s economy and encompassing around 800 million people. In the long run, 98% of tariffs would be removed. According to the Washington-based Peterson Institute for International Economics, it would raise the world income by $295 billion a year over the next decade.
Just nine months ago, Mr. Obama smelled success when 12 Pacific Rim Countries, including the US, Australia, Canada, Japan, Chile, and Singapore signed the pact. China, the regional powerhouse, was excluded by design.
But the deal still had to be ratified by several national capitals. Tokyo pushed ahead in an attempt to show the US it meant business, but Congress proved intractable, and Mr. Trump’s election has now all but killed it off.
“The TPP would be meaningless without the United States,” Japanese Prime Minister Shinzo Abe lamented this week.
China in the driver's seat
The deal was supposed to be a powerful lever of US influence in the Asia-Pacific region. America’s imminent withdrawal leaves a vacuum that China, its rival superpower, may be eager to fill.
The Middle Kingdom seems keen to take the lead now the US is in retreat. “United by the same dream, there isn’t a more timely moment for the deepening of our multidimensional cooperation,” Xi Jinping wrote in a column for Peru’s daily El Comercio on Tuesday.
TPP was long considered as a counterbalance to Beijing’s growing economic influence in its own backyard. It “allows America - and not countries like China - to write the rules of the road in the 21st century, which is especially important in a region as dynamic as the Asia-Pacific," Mr. Obama said when the deal was signed in February.
The outgoing president was present at last weekend's Asia Pacific Economic (APEC) Leaders’ meeting in Peru, where he could see this plan falling apart before his eyes. The letters RCEP, short for China’s Regional Comprehensive Economic Partnership, were seen and heard everywhere.
Unsurprisingly, top US trade official Michael Froman appeared downbeat. “We see people around the table here right now talking about if the TPP does not move forward then they’re going to have to put their eggs in the RCEP basket.”
Indeed, President Xi’s ambitions extend far beyond the Asia-Pacific. He has courted Latin America ever since assuming office in 2012, and these efforts have paid off. In September, Peruvian president Pedro Pablo Kuczynski went to China to hunt for investors on his first official trip abroad. With Chinese investment, he wants to turn Peru into a regional metals refining hub.
“China is a likely candidate, since it has steadily strengthened its commercial and investment relations with the region over the last decade and already enjoys free trade agreements with several countries, including Chile and Peru,” Gustavo A. Flores-Macias, associate professor of government at Cornell University, told The World Weekly.
Countries like Peru are careful not to put all their eggs in one basket. At the summit, Trade and Tourism Minister Eduardo Ferreyros Kuppers said he hoped Mr. Trump would not pull out of TTP, but conceded that he was intrigued by RCEP.
His colleague, Foreign Minister Heraldo Muñoz, was even more enthusiastic, and Latin American leaders vowed to continue embracing free trade at any cost. "We reaffirm our commitment to keep our markets open and to fight against all forms of protectionism," they said. This leaves China with 11 possible RCEP members, while Latin American countries might also be keen to access Mr. Xi’s own signature initiative: ‘One Belt, One Road’.
“The next step for President Xi is continuing to explore its bilateral trade agreement negotiations with countries, which are intending to join RCEP or those countries that have already signed bilateral trade agreements and want to join RCEP,” Dr. Yu Jie, a research fellow at LSE IDEAS, told TWW.
In August, Singaporean Prime Minister Lee Hsien Loong said that pulling out of TPP would put America’s reputation in the region on the line. China, on the other hand, is there to stay.