President Trump ‘trumps’ the TPP

Image credits – Michael Vadon

President of the United States Donald Trump has formally withdrawn the US from the ‘Trans-Pacific Partnership’ or TPP. TPP is a flagship deal with 11 countries in the Pacific Rim. With the US opting out of the TPP, the only remaining countries in the trade deal are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. The TPP was the world’s largest trade agreement involving 12 nations, accounting for about 40% of the global economy. TPP was expected to eliminate more than 98% of tariffs in the region. Beyond market access, the TPP was to create a single set of trade and investment rules between its member countries, making it easier and simpler for them to trade in the region. It was one of the signature efforts of Former President Barack Obama. It was aimed at increasing America’s influence in Asia and check China’s economic and military ambitions. However, the TPP was never ratified by the ‘Republican-controlled’ US Congress. Several Democratic Party leaders were also opposed to it, including Former Secretary of State Hillary Clinton. What are the implications of this withdrawal by the US?

As the TPP had a strategic dimension (as discussed earlier), it was natural for the US Congress to provide authority to the former President on this issue, unless it was something which was manifesting against the broader interests of the country. There was a lot of criticism in many circles about the secrecy with which the TPP was being negotiated between the member countries. Almost nothing was made public during the negotiations, hence, the public was unaware about its possible ramifications. There is another criticism being levelled against the TPP agreement i.e. mounting concerns about the job losses and flight of capital in the form of US firms investing abroad. It was also alleged that the indiscriminate imports into the US territory would hurt the domestic economy. Progressive Democrats such as Bernie Sanders deposed the TPP right from the beginning, saying that such trade deals favour only big corporations, they result in loss of jobs and ultimately end up in depressing wages. It is known that a significant section of the Democratic Party had fiercely opposed the fast-track authority to be given to the Obama Administration, which is why President Obama had to reach across the aisle to Republicans to get that fast-track authority. Hence, President Donald Trump cannot be blamed alone for guillotining the regional trade agreement, but there was a tacit bipartisan consensus over the possible negative fallouts from the deal.

The opposition against such regional trade agreements is not new to the American history. When NAFTA was being negotiated in 1992-93, Presidential candidate Ross Perot had said that he hears a sucking sound where the jobs are being sucked out of the United States to Mexico. In actual practice, this is what the working class in America feels today that a significant portion of low end jobs have shifted to Mexico as a result of NAFTA. Because of the resultant loss of jobs from the NAFTA and the shocking extreme financial crisis from which the US is yet to be recovered in a robust fashion, a significant section of working class accumulated insecurity and anxiety over such regional trade agreements. This anxiety is tripled with the growing inequality due to the skewed distribution of rewards of the globalisation.

It is wrong to blame only the Trump Administration over the xenophobic, inward-looking and protectionist approach. The American foreign policy vision has veered over the last 78 years between activism and outward-looking policies followed occasionally by periods of inward-looking, ‘fortress of America’ kind of approach. So, after this activist eight years’ phase of Obama administration, the America is coming back to the inward-looking phase where protectionism and xenophobia supersedes liberalism.

In the inaugural speech of President Trump, he clearly said that America has sacrificed itself for the interests of others and suffered all the consequences of its own generosity whereas others have profited from the American protection. This clearly sends a signal across the globe that traditional economic and political alliances of the US are open for reassessment and renegotiation. Such reassessment and renegotiation would rather strengthen the American strategic influence and it would re-emerge as a hegemonic power in the region.

A significant concern is about the future of President Obama’s flagship programme called ‘pivot to Asia’, given that the economic angle to it has been rubbed off the board. President Trump has given ambiguous signals over the ‘pivot to Asia’ policy. On the one hand, he says that he is not too enthusiastic about this flagship programme of Obama Administration, whereas on the other hand, he threatens that he is not going to let China get away without challenging the actions that go against the international law. He has issued strong statements against China for illegally usurping the islands in the South China Sea contravening the international law and called for denying access to China over this region. Similarly, on trade he has also said that he will challenge China as a currency manipulator. Therefore, it can be assumed that he would not withdraw from the Asia-Pacific region but the balancing act may be pursued in some other form than his predecessor’s pivot to Asia policy.

The withdrawal from TPP might give more leverage to President Xi Jinping to position China as an economic and military anchor in the Western Pacific region. President Xi Jinping might pursue the Regional Comprehensive Economic Partnership (RCEP) with a great vigour now, in which India is also a participant. It is believed that contrary to the popular belief of RCEP taking the flight now after the dismemberment of the TPP, it could actually go slow because the pressure on RCEP to reach a deal would be absent. Anticipating the pull-out of the US from the TPP, the RCEP deal which should have been reached by December 2016 has been deferred to December 2017 now. But such multilateral agreements cannot dominate the influence of the US in the region because it would anyhow make a comeback in the economic sphere with bilateral trade agreements. Moreover, as long as the strategic ties of America in the region such as with Japan, South Korea and India are in place, the American influence in the region would continue.

It is most probable that President Trump would pursue bilateral trade agreements with the TPP members (most specifically with Japan and Vietnam) which might actually mirror the acceptable portions of the TPP agreement itself which are in favour to the American interests. In these bilateral arrangements, the US could take advantage of its asymmetrical power in comparison to other members. The bilateral trade agreements of the US with Japan and South Korea are testimony to this fact.

Japan has called for dismantling the TPP because of the US withdrawal, but countries like Australia and New Zealand are calling to invite countries like China and Indonesia to be a part of the TPP to replace the vacuum created by the United States. It could be seen as a blessing in disguise by China. TPP members could also invite India in the future, but India would be sceptical of the Chinese presence in the agreement because any agreement devoid of the US and participated by China, becomes unbalanced. Similarly, many other Asian countries (including Indonesia) are vary of Chinese hegemony, so the future of TPP looks grim.

The dismemberment of the TPP is advantageous to India because India was outside the TPP and the effort was to establish WTO+ norms which both India and China would have to ‘willy-nilly’ accept or be at a disadvantage. To paraphrase Kishore Mahbubani, “We should take the fullest advantage of this TPP fallout and renegotiate our trade deals with a lot of countries and ultimately benefit out of it.”