Insights into Editorial: Trump moves to pull U.S. out of TPP
US President Donald Trump made abandoning the Trans-Pacific Partnership (TPP) trade deal a key part of his election campaign and on his first day in office, he has proved as good as his word.
What is TPP?
Twelve countries that border the Pacific Ocean signed up to the TPP in February 2016, representing roughly 40% of the world’s economic output.
- The pact aimed to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth. Members had also hoped to foster a closer relationship on economic policies and regulation.
- The agreement was designed so that it could eventually create a new single market, something like that of the EU.
- But all 12 nations needed to ratify it, before it could come into effect.
- Member states include: Japan – the only country to have already ratified the pact – Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.
How big a deal was the TPP?
The 12 countries involved have a collective population of about 800 million – almost double that of the European Union’s single market. The 12-nation would-be bloc is already responsible for 40% of world trade.
- The deal was seen as a remarkable achievement given the very different approaches and standards within the member countries, including environmental protection, workers’ rights and regulatory coherence – not to mention the special protections that some countries have for certain industries.
- The US pulling out will be seen as big blow for other nations that signed up.
Which goods and services are involved in the TPP?
Most goods and services traded between the countries are named in the TPP, but not all tariffs – which are taxes on imports – were going to be removed and some would take longer than others. In all, some 18,000 tariffs were included.
- For example, the signatories said they would either eliminate or reduce tariffs and other restrictive policies from agricultural products and industrial goods.
- Under the agreement, tariffs on US manufactured goods and almost all US farm products would have gone almost immediately. But some “sensitive” products would have been exempt until a later agreed date.
Without the US does it definitely fail?
To take effect, the deal would have had to be ratified by February 2018 by at least six countries that account for 85% of the group’s economic output. The US would need to be on board to meet that last condition.
- Some countries, including New Zealand, have suggested some sort of alternative deal may be possible without the US.
- But Japan’s Prime Minister Shinzo Abe has said a TPP without the US – and its market of 250 million consumers – would be “meaningless”.
What’s good about TPP?
Those in favour say this trade deal will unleash new economic growth among countries involved. It is being said that the TPP has high potential to promote economic growth and improve people’s living standards by facilitating the free cross-border movement of key factors of economic activity, such as goods, people, money, and information. Failure to bring the TPP into force would be a great loss to not only the TPP countries such as Japan and the US but also the global economy they argue.
Why Trump is against this deal?
Trump thinks such deals will hurt American workers and undercut US companies. His stance on trade is protectionist: he has vowed to shield Americans from the effects of globalised trade by slapping hefty tariffs on cheap Chinese imports of up to 45%.
Trump says, “The TPP creates a new international commission that makes decisions the American people can’t veto, making it easier for our trading competitors to ship cheap subsidised goods into US markets – while allowing foreign countries to continue putting barriers in front of our exports.”
Implications of this move:
TPP, unlike regular bilateral FTAs, has “open architecture,” which means Washington would have been able to attract new members over time and generate a race to the top in terms of trade pacts regionally and even globally.
- Strategically, TPP’s failure will reinforce doubts about American credibility in the region amid a rising China, as several Asian leaders including Singapore’s Lee Hsien Loong have warned.
- It will also undermine Washington’s efforts to strengthen the capabilities of its Asian allies and partners, who desire both diversification in their foreign relations as well as reforms domestically that TPP would have induced.
- It will also make U.S. Asia policy seem unbalanced, since TPP was the major plank in the economic realm of the Obama administration’s so-called rebalance, even though there were less significant initiatives as well that did not get as much attention.
Implications for India:
Walking out from TPP threatens the US strategy of rebalancing Asia, which amounted to India-Japan-US security cooperation. This will force India — where US anchored its Asia-Pacific policy — to rethink its Look East Initiative.
- India was not part of the TPP, but it has been an important instrument of realpolitik for Washington and New Delhi as they sought to counter the rise of an assertive China without hurting their economic equations with the country. In the rebalancing of its resources in Asia-Pacific, the US saw India’s role as the “lynchpin” of the strategy.
- The US’ “Pivot to Asia” and India’s “Act East” policies conflate. Washington sees India as having a greater role in providing security and stability in the region. The two strategies have been shaping the security order in the region as India was reinvigorating its ties with Asian powers like Japan and Australia that has rattled China greatly.
- Now, India should not be complacent because of the current uncertainty surrounding TPP. We must fully understand the implications of the various TPP disciplines and how we should strategise ourselves in response to the very many ways they can impact us.
US participation was the major linchpin for the deal. It may be possible for the other countries to forge a smaller scale pact in it’s place, but it can’t go ahead in its current form.
What happens to TPP after U.S. withdrawal, however, is less clear. Several TPP signatories, including Malaysia and Vietnam, have been signaling that the agreement is essentially dead without the United States, whose inclusion was the very reason why the agreement – which initially began as a pact between just four countries, Brunei, Chile, New Zealand and Singapore – got the heft that it later did. Yesterday, Japan’s Prime Minister Shinzo Abe, who recently became the first foreign leader to meet with Trump, joined this chorus of voices, saying that the TPP “has no meaning” without the United States. As for the United States itself, some have been quick to suggest that the United States would essentially be excluding itself from Asia’s ongoing economic integration and passing the torch of free trade to China.
While the consequences of U.S. TPP withdrawal are dire, it is important not to exaggerate them as some are already doing. While China’s economic influence is growing, Asian countries desire diversification, and the United States’ large market is still attractive. TPP also offers the other eleven signatories benefits that other agreements like the Regional Comprehensive Economic Partnership (RCEP) they may end up wanting to preserve in spite of Washington’s withdrawal from it. And though Trump has rhetorically suggested a hard line on TPP itself, we still do not know what his administration will do in terms of economic policy. It may thus still be too early to declare TPP’s end.