GBS - At the end of January, Donald Trump signed an executive order to withdraw the United States from the Trans-Pacific Partnership (TPP). The TPP, a multinational trade agreement (similar to the European Union [EU]) that included the United States as well as Japan, Malaysia, Vietnam, Brunei, Australia, New Zealand, Peru, Singapore, Canada, Mexico, and Chile, was finalized and agreed upon during Barack Obama’s presidency, but it had yet to be ratified. Now with the U.S. officially out of the deal, what’s next?
Will the TPP be finalized without the U.S.? No, at least not in its current state. Part of the deal was that at least six countries that make up 85 percent of the entire TPP group’s economic output would have to ratify the deal before it could actually go into effect. Because the U.S. economy is so huge, no other six countries can reach that 85 percent without it.
So what will the other 11 countries do next? Without the TPP, the other 11 countries aren’t completely dead in the water, but they do need to pivot — and they’ll likely pivot to China. “Many countries in Asia have publicly said they urgently need a Free Trade Agreement (FTA) to continue to grow their exports,” Timothy Barnes, author and president of Asia Pacific Consulting, tells Teen Vogue. Now that the TPP no longer appears to be an option, Barnes sees those countries as taking two routes. One is negotiating bilateral trade agreements, which Barnes says Japan has already started doing with India and Canada. The other is entering into a multilateral trade agreement, the Regional Comprehensive Economic Partnership (RCEP), something that’s already in the works and began as an ASEAN (Association of Southeast Asian Nations) agreement that Barnes says China has now taken the lead in. The RCEP includes 10 ASEAN countries (Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar [Burma], and Vietnam), as well as Australia, China, India, Japan, New Zealand, and South Korea.
“China will write a big trade deal with the rest of the region, and they will sign,” Tyler Cowen, author and Holbert L. Harris Chair of Economics at George Mason University, in Virginia, tells Teen Vogue. “They’re starting on it already."
Why is China such a big deal in all of this? One of the biggest arguments in support of the TPP was that it would strengthen the United States’ ties with the fast-growing Asian Pacific region and help the U.S. remain economically competitive with China. “When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy,” President Obama wrote in a statement on the TPP in 2015. Now that America is out of the picture, China has the chance to do just that.
“Our trade competitors like China are forging massive regional trade agreements,” Barnes says. “Time will tell, but my assumption is that China will continue to open its doors to global trade. And while America starts to close its doors and focus on simple bilateral agreements, the power of global trade will surely move toward China.”
How will this affect America? In the short term, both Cowen and Barnes note, the U.S. economy won’t really suffer. Some industries, like professional services and agriculture and food, may see a monetary increase in exports, while others, like manufacturing and electronic equipment, might see a loss. “It’s a mixed bag, [but] it is strongly believed that the U.S. economy would grow with an increase in annual GDP of $42.7 billion by 2032,” Barnes says, citing a U.S. International Trade Commission report.
So is this all about money? No, economics is certainly a huge part of the TPP, but the agreement also included requirements for workplace safety regulations, the prohibition of forced or child labor, punishments for illegal wildlife trafficking, and standards for Intellectual Property (IP), among other things. All these standards may now be up in the air with the loss of the TPP and the potential gain of the RCEP. “The TPP had several social elements to the agreement, with focal areas around the environment and labor laws, ensuring that all countries meet at or above the international standard,” Barnes says. “However, the RCEP is a trade-focused agreement and does not cater to these social elements, and many observers think that with the huge focus on trade growth, it will have an overall negative impact on the environment and labor issues.”
And that impact could directly affect American workers. “[The] RCEP will put China in the driver’s seat to set the rules of trade in Asia, with many of those rules possibly being anti-American,” Barnes says, a sentiment also expressed by Senator John McCain, as reported by CNN.
But it’s not even just about labor laws and environmental standards. Cowen’s concerns about withdrawing from the TPP are far graver than that. “I think it’s saying [to the other countries], ‘We won’t be there for you,’” he says. “It’s signaling there is no pivot to Asia, America will go back into its shell. And I think 50 years from now, through largely intangible factors, that will mean a much worse world.... It’s [about] the whole vision of America engaging with the world.”
For example, Cowen points to both Japan and South Korea and the domino effect this could have on them. “If you’re South Korea and your best and biggest ally just told you, ‘We’re not even going to run this trade agreement,’ [but] they’re still telling you, ‘We’re gonna defend you against North Korea,’ I think at some point you start doubting that,” he says. “And [with] Japan, [if] the U.S. says, ‘No, you don’t need to build nuclear weapons — we’ve got your back,’ I think, as Japan, you need to start doubting that. I’m not sure either of those are things that will change overnight, but if we don’t reverse the unraveling perceptions, you’ll find those countries looking for their own solutions. South Korea would probably cut a deal with China. Japan might rearm more.”
As for the smaller Asian countries that Cowen says are “sort of torn between the Chinese orbit [and] the American-Western orbit” — like the Philippines, Thailand, and Vietnam — he imagines they’ll ultimately move toward aligning with “the less free, more local power.”
“I think that’s very bad for a few hundred million people,” he says. “I think it means they’ll never quite aspire to be really free, fully well-functioning democracies, because their biggest ally, China, won’t really want it. I don’t think China is going to enslave them in any way, but it will be [a situation in which they’ll] have to toe the line and not criticize China, and control [their] own press somewhat and kind of manage everything in a particular way. I think that’s what it would mean for the future of that whole region.”
What will the U.S. do next? Although Trump made it very clear in his inaugural address that he plans to focus on “America first” and not so much on the rest of the world, this doesn’t mean he’s going to end trade with other countries completely. Rather, Bowen notes, Trump will favor bilateral deals with certain nations over multi-country trade agreements, something that “makes sense for specific trading partners,” he says, but won’t help in remaining competitive with China.
And then there’s NAFTA. One of Trump’s many campaign promises was to renegotiate the North American Free Trade Agreement (NAFTA), an agreement between the U.S., Mexico, and Canada that outlines rules for trade and investment among the three countries. The TPP, which included both Mexico and Canada, did renegotiate NAFTA, and in a manner that both countries agreed with, Cowen notes. Now Trump is faced with figuring out a new way to renegotiate the deal without making our neighbors to the north and south too angry. “To renegotiate NAFTA without Canada or Mexico agreeing, that’s very ugly,” Cowen says. “Those countries are our friends. To treat them as adversaries when we have [such] bigger, badder opponents is, I think, crazy. You couldn’t really ask for better neighbors than the ones we have.”
Cowen, for his part, hopes that Trump and his advisors come to their senses and figure out a way to continue some sort of free trade. “The best-case scenario is that Trump’s advisors go to him and say, ‘Look, you promised to renegotiate NAFTA. TPP does that. You’re very willing to tell people lies. Why not just tell people this is a new and better TPP? If need be, change some cosmetic things in it so it’s not a strict lie and then call it your own, rename it, and pass it,’” Cowen says. Though he doesn’t expect that to actually happen, he believes it would be a big win not only for America but also for Trump, the Republicans in Congress, and the businesses that would benefit from it. “I think it’s a pure political win.”
If down the road Trump decides that he wants back in, chances are it’ll be too late. “Those other countries, they’d rather have the U.S. as a counterweight to China,” Cowen says. “They don’t want this. They would rather do the deal on the table, or it wouldn’t have gotten this far.” But they’re also not going to wait around for the U.S. to come to its senses, perhaps causing them to miss out on the second-best deal. Nor, Cowen says, may they be so keen on renegotiating with the U.S. after the ups and downs that have already happened with the TPP, even if a deal with China falls through for some reason. “If we jerk them around, we negotiate this with them for years and years...and then Trump says no and then Trump comes back in two years, they might still do it, but at some point countries [might not be willing]."