US President-elect Donald Trump has announced that he will pull out of the 12-member Trans-Pacific Partnership trade agreement as soon as he takes charge as president. The move is in keeping with his economic populism and the treaty is all but scrapped as far as the US is concerned. The move, however, will not have a significant bearing on China. On the other hand, it now postures itself to take up a substitutionary role in trade partnership.
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TPP is one of the most complex trade agreements ever formulated and without US ratification, the other signatories will have to undertake several modifications to salvage the agreement. That being said, Trump’s move means that the US will cede economic leadership in Asia Pacific region to China and cause an instant negative impact on US firms by denying easy access to Asian economies.
President Barack Obama took up the daunting task of reassuring the 21 member countries of the Asia Pacific Economic Cooperation at a summit in Lima, Peru. This was a summit held in times of volatile international trade environment. The summit took place on November 19 and 20. Trump routed Hillary on the back of a largely criticised Republican platform that attacked the TPP and other free trade agreements.
The TPP has become a hallmark of Barack Obama’s presidency and his policy of ‘rebalance to Asia.’ A Trump victory, however, will put an end to it. Much has been made out of China’s new substitutive role in the partnership. The members understandably met with a big dose of pessimism over the ensuing times for free trade. The shock of Trump’s election has still not worn off APEC leaders and Chinese President Xi Jinping moved into assure member states that it will “open the gate wider” for trade partner countries.
China has, over the years, formulated its own plans for expanding its footprint for regional trade domination with the pacific rim countries. As the major partner now in the region, it will want to implement its regional comprehensive economic partnership (RCEP). This partnership doesn’t include the US but has major economies in Asia as member states including India, though it isn’t even a member of APEC. It may also look into APEC’s Free Trade Area of the Asia Pacific (FTAAP) plan that has been floating around for around 10 years now.
Unlike the TPP, the RCEP is believed to be more tolerant towards countries with centrally planned economies but low levels for labour benchmarks. It does little to change any standards and non-tariff blocks in trade. However, it is more of a traditional free trade agreement and that entails bringing down or even removing tariffs.
The TPP members may even take out leaves from these deals to modify the TPP agreement moving forward. It appears that US will miss out on benefits of Asian and trans-pacific trade integration while exercising protectionist trade principles for the US’ economic growth. TPP without the US will still yield gains for the members, especially China will now become the trade centre for the pacific rim countries.
The TPP was conceived as a quadrilateral initiative. The first member countries were Chile, Singapore, New Zealand and Brunei. The partnership grew further to 12 members with normative standards based largely on US norms.
The partnership, if Trump does not move out, would’ve made way for the US to dictate rules related to labour, environment and copyright and intellectual property for the partnered global economy. It was also important as US presence was key to its geopolitical pivot to Asia policy. Trump’s notification of an executive order to move out of TPP will benefit China at the expense of US.
The increase in trade in pacific rim would’ve given America a leg up over its competitors in the region and kept its competition up with China. The China-centric partnership will now likely move into the political forefront in Asia Pacific region.
The TPP was cleverly used by the US to engage China in a fresh round of discussions with China responding with subdued interest. However, the view that TPP would only benefit China was propagated in policy circles rather baselessly.
The RCEP ad FTAAP would now be two trade blocs that China will look forward to. Indeed, it would not have rivalled the TPP if US had been a signatory and in a net net comparison, China will lose out on a lot. It is also believed that the FTAAP will be even more difficult to negotiate than TPP but it seems the way forward for China.
RCEP offers small tariff concessions and net economic gain for member countries wouldn’t be close to TPP’s offered gains. However, the countries will now move to China’s trade blocs and will help China gain economic as well as geopolitical influence in the Asia pacific region.
Still, the Chinese record on trade deals is not very good. The country has only ever signed one free trade deal in the past and that was with neighbours Taiwan. That deal had essential political overtones.
Chinese economy on the whole is unlikely to take a hit after the failure as Beijing has always taken its strength from its own economic and soft-power initiatives. It will now focus more on Chinese investment initiatives. White House’s policies for decoupling Asian economies from America will likely force Asian economies to hedge towards China. If the US goes beyond killing the TPP agreement by implementing stricter tariffs on Asian countries and thus discriminating in trade with Asia, China could slingshot to a more central role in the region.