Trump Puts Final Nail in TPP’s Coffin, Will Anything Replace It?

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Well, President Donald Trump certainly hit the ground running this week.

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On his first day in the Oval office he signed 3 executive orders, the most significant of which is probably the one withdrawing the U.S. from the Trans-Pacific Partnership trade deal — TPP. The TPP is a giant free trade agreement forged by the Obama administration with the aim to cut taxes and develop trade with 11 other Pacific Rim nations from emerging markets to mature economies like Australia. Trump has been consistent throughout his campaign and since that TPP was bad for American jobs so his statement on signing the executive order as “a great thing to the American worker,” comes as no surprise.

What Does No Deal Mean for the US?

Critics have argued that backing out of TPP would reduce America’s strategic position in the Asia-Pacific region and leave the door open for China to take the lead as the champion of free-trade. According to Fox News, U.S. Sen. John McCain (R-Ariz.) called the withdrawal a “serious mistake that will have lasting consequences for America’s economy and our strategic position in the Asia-Pacific region.”

He added that it would “create an opening for China to rewrite the economic rules of the road at the expense of American workers.” In reality, such fears are probably overblown and while the debate will rage as to the benefits and disadvantages of free-trade, few can seriously argue that unfettered access for low-wage emerging economies to high-wage mature economies like the U.S. has not and will not continue to mean the loss of U.S. jobs to lower-cost locations.

That President Trump fulfilled his campaign promise to withdraw the U.S. from TPP, therefore, comes as no surprise but what may be of more interest is what it tells us about the new administration’s attitude toward trade and International engagement.

The US and the World

The two are the same thing, of course. The U.S. could, and almost certainly will, take a broadly protectionist view on matters of trade, of which TPP is just the first example. Trump’s self-promoted skills as a dealmaker may yet play a part both in the nature of new trade deals and America’s dealings with the rest of the world. For example, while Trump has been dismissive of NATO and not unreasonably made it clear his dissatisfaction with the level of contribution some NATO members make to their own defense, it could yet be that this is part of his dealmaking approach.

We could arrive at a situation where the Europeans up their game, contribute a full 2% of GDP to their own defense, and in the process the U.S. and Europe rejuvenate NATO and make it a force to be reckoned with. We can but hope.

While the new administration clearly has workers’ jobs as a central tenet of its trade policy, it does not preclude the U.S. from concluding trade deals if it deems them in its best interests. There is speculation, fueled in part by Trump’s own team, that the forthcoming visit of Great Britain’s prime minister, Theresa May, at the end of this week could herald some form of U.S.-U.K. trade deal to take effect after Brexit. Trade deals between economies with similar wage costs are however very unlikely to result in job losses or the relocation of whole industries such has been the case between the U.S. and Europe to Southeast Asia.

What, if anything will replace TPP? Without access to the U.S. market the rationale for the agreement is less compelling. Critics of the new president’s decision say it will leave China to increase its influence in the region and, indeed, Bloomberg reports that China is making renewed efforts to promote the 16-nation Regional Comprehensive Economic Partnership (RCEP) which takes in Southeast Asian countries, plus Japan, South Korea, Australia, New Zealand and India.

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For me, though, the key issue is TPP gave access to the vast and wealthy net importing U.S. market. RCEP may facilitate free trade but the largest member is a vast and not so wealthy net exporting economy: China. Countries like Japan, Australia, South Korea, New Zealand, etc. may want to think twice about that. They could find they are opening their markets to China only to achieve little in return.

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