TRANSFORMED TPP, TRUMP AND CHINA
One of the first acts Donald Trump undertook as President on January 23 of 2017 was to honour a campaign pledge to withdraw the US from the Trans-Pacific Partnership, a 29-chapter trade agreement which would have been the largest trade deal in history.
The project had begun as the Trans-Pacific Strategic Economic Partnership Agreement reached between Singapore, Chile, New Zealand and Brunei in 2005, before the US became the major player in 2009, under the leadership of Barack Obama, who went to extensive efforts to shape it into the 12 party trade group from which Trump withdrew. The motivation behind Obama’s engagement with the TPP (which has received equal amounts of criticism and praise from observers for reasons we shall consider further on), is fundamentally a desire to check the influence of China, the economic powerhouse of the East which is increasingly assertive in the Indo-Pacific region. The news of the US’ withdrawal (which accounted for 60% of the combined GDP of the original TPP) was the death knell of the deal, many suggested, at the time and yet, on January 23, 2018, after two days in intense talks in Tokyo, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam agreed that they will sign a deal in March in Chile called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), or TPP-11. The reaction of former US Secretary of State John Kerry sums up many of the concerns of those in favour of the “pivot towards Asia” the deal represented: “The fact that there are 11 other countries willing to put the finishing touches to the deal tells you something about the scale of the opportunity my country has chosen to miss by walking away.
Meanwhile China is filling the vacuum.”
This last point is key: is Donald Trump, by thwarting the deal, putting mollifying domestic industry (who largely make up his voters) ahead of furthering US influence, thus going to “make China great again”? It seems that Beijing meanwhile has its own plans for solidifying the influence that the US under Obama had wished to counterbalance - its One Belt, One Road initiative, an infrastructure project of biblical scale which hopes to increase trade and foster economic growth across Asia. How, one year on from Trump’s withdrawal from the TPP, has the geopolitical balance shifted,
just as the BRI initiative has gained pace?
When Donald Trump withdrew the US from the deal last year, the mood around the TPP was somber. As the economic giant within the grouping, and under Obama, the engine of its momentum, a TPP without the US and its enormous market of 250 million consumers seemed futile. Indeed, Japan's Prime Minister Shinzo Abe has said that a TPP without the US would be "meaningless”. Yet he played an active role in militating for a replacement deal and one which, as previously mentioned, finally looks set to be signed in March. Others who required persuading were Canada’s Justin Trudeau, who made headlines when he did not appear at a signing ceremony to the great embarrassment of Shinzo Abe in November of last year, which seemed to signal another nail in the coffin of the deal. Trudeau’s
'cold feet', which were not particularly publicly explained, seem likely to be a matter of popular resistance to the deal largely, over concerns about job security (the same motivations which have made it an issue in the United States). The irritation of the other leaders in the pact towards the Canadian Prime Minister was compounded by Trudeau then attempting to make a bilateral trade deal with China just a few weeks later. And yet, Trudeau was of course present at this week’s critical talks and seen to be in concert once more with the rest of the TPP 11, whose trade totalled a not unrespectable $356 billion in 2016. His turn-around can perhaps be explained by major diplomatic efforts on the part of the Australian PM Malcolm Turnbull and the fact that attempts to negotiate deal with China went sour. On his visit to Beijing at the start of December last year, a joint press conference had to be cancelled and the two sides merely made statements about cooperation on climate change. Canada is seeking to diversity trade away from the US and NAFTA, but for now any deal with China remains very much at an ‘exploratory’ stage.
Issues surrounding the TPP11 negotiations, as evinced by Trudeau’s hesitations, remain legion and are similar to those which emerged when the US was negotiating. There are concerns that major trade deals like this serve to increase the wealth of the wealthiest and that they promote the interests of a small number of multinational companies. A major concern, identified by many observers as being the reason for Trudeau’s prevarication (and a point on which Trump was vociferous) is that deals of this sort are disastrous for domestic industry. To give an example, the Wall Street Journal had found that, if it went ahead, by 2025, the deal would increase the U.S. trade deficit in manufacturing, car assembly and car parts by $55.8 billion a year. There are also worries that deal like this, despite purporting to increase standards (the TPP prides itself on being a “high-quality” deal) they in fact overlook environmental concerns and exacerbate income inequality in member states. More specifically, each country has its own concerns, a few examples of which are Canada’s fears about intellectual property, the culture industry, and origins of cars, Vietnam’s concerns about rules that would improve rights for its workforce, and Malaysia’s focus on achieving greater flexibility with regards to its oil and gas sector, to name but a few.
Nonetheless it seems there is much more positive momentum around the deal than before, and an interesting reflection of how one year can change geopolitics is
the fact that it has even been suggested that the UK might join! Despite not being a Pacific state, nor bordering the South China sea, in January the Financial Times reported that Trade Secretary Liam Fox had not ruled out the possibility of the post-UK, hungry for trade deals, coming on board. This is particularly significant given the Foreign Secretary, Boris Johnson’s assertions that Britain should return “East of Suez”, perhaps in an attempt once more to find a new direction for the UK since the seismic shift of Brexit. The TPP could act an economic buttress to a more assertive military strategy outside of the European sphere. Since it seems likely that Britain will have to re-solder ties with Commonwealth countries in the wake of the Brexit, and 6 of the 11 nations in the TPP are Commonwealth members, it is not entirely illogical. There is nothing to indicate so far that the TPP would actively solicit the UK’s participating, (nor that, despite the fact that it has strong trade relations with Asia-Pacific zones, it would actually qualify for membership) though as the world’s fifth-largest economy and a member of key multilateral organization, it might not be unappealing for the TPP to mull the idea of its presence. However, combined spending from the 11 TPP countries constitutes less than 8% of the UK’s export market. If the UK did join the TPP, some analysts, such as Aaron Connelly from the Lowy Institute for International Policy
asserts it would have "little leverage" in talks. In a further hypothetical leap, if the UK were to join, could they then persuade India?
Which brings us back to the geopolitical dimension of the TPP. When the US was driving the TPP under Obama, there were clear geo-political goals, the
principal one being that of containing China’s influence. Despite the US’s departure, China’s influence remains a preoccupation for Japan, who may be of the view that the region has to have an alternative to China’s Regional Comprehensive Economic Partnership (RCEP), which is a less stringent deal for members of the Association of Southeast Asian Nations (ASEAN) - in other words Australia, China, India, Japan, South Korea, New Zealand, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Kotaro Tamura, an Asia fellow at the Milken Institute and former senator and parliamentary secretary in charge of economic and fiscal policy in Japan has noted that the geo-political aspect of the deal is a preeminent
factor for Tokyo, commenting: "TPP is a unique asset for Japan to attract and to impact Southeast Asian countries through trade for the benefit of Japanese security”.
It is not completely out of the question however that China could eventually join the TPP. It is the largest trading partner to 8 of the 11 states, and the second largest to two of them. If Beijing were to be included it would of course dramatically increase the prestige and power of the TPP. In an article published in East Asia Forum by Matthias Helble and Yizhe Daniel Xie from the Asian Development Bank Institute, they suggest, “one could even imagine expanding the CPTPP further and forming the Free Trade Area of the Asia Pacific (FTAAP). This could be done by allowing countries to gradually adopt the new rules in several phases depending on each member’s stage of economic development. In this way, the CPTPP could reshape the world’s economy and trade”. It could potentially neutralize rivalry between Japan and China.
The obstacles to China joining seem primarily to be the fact that the TPP was from the outset sold as a “quality” trade deal, with stringent regulations which China has always been unlikely to accept. Returning to the idea of the UK bringing India into the TPP, member states have never directly said that India cannot join, except it is
'de facto' excluded, by the fact of it being a “high quality” deal which includes measures on human rights, child labour, and intellectual property obligations. India in its state of development would struggle to meet those criteria, so unless the deal became less stringent or there was evidence of rapid development, it would seem unlikely. Some have suggested that from New Delhi’s point of view the TPP was a punitive move, an avowal of frustration at India’s shock blocking of the WTO’s global trade reform pact in summer of last year due to issues surrounding agricultural stockpiling. At the time Australian Trade Minister Andrew Robb expressed the frustration of many at India’s obstinacy when he commented, “There are no winners from this outcome - least of all those in developing countries which would see the biggest gains.”
Which brings us to the critical issue of who has “won” when it comes to the TPP in its new form and is it as John Kerry asserted so clearly, China? Chinese military leader and strategist at China’s National Defense University Jin Yinan gave a much quoted speech when Donald Trump was inaugurated President (and pulled the US out of the TPP) in which he noted that Trump “has given China a huge gift.” China has been quick to capitalize on the opportunities presented by Trump. As China expert Evan Osnos pointed out in
'The New Yorker', when President Xi Jinping spoke at the World Economic Forum, in Davos, Switzerland, for the first time, he used the opportunity to voice support for the Paris climate deal and stated “no one will emerge as a winner in a trade war.” Osnos remarks upon the irony of this comment given that protectionism was long a ballast of Chinese trade policy.
Trade war is what Jinping foresaw, and if the TPP was the opening salvo, Trump has now made his first major maneuver. On January 24 of this year, he announced a 30% tariff on imported solar panels, promoted by the White House’s alarm at “artificially low-priced solar cells and modules from China”. He also slapped tariffs on imported washing machines: the first 1.2 million imported large residential washing machines in the first year will have a 20% tariff imposed on them, while there will be a 50% tariff on machines above that number. South Korea has said it will complain to the World Trade Organization and described the tariffs as “excessive" and "regrettable”. China also complained that the move was an "overreaction" and pledged to "work with other WTO members to resolutely defend its legitimate interests". Wang Hejun of China's commerce ministry called the decision "an abuse of trade remedy measures.” Despite Trumps’ avowals that this has nothing to do with a trade war, it seems that the “America First” trade policy is truly underway.
The question is how far Trump will go. Trinh Nguyen, a senior economist at Natixis SA in Hong Kong and former consultant to the World Bank, told Bloomberg that “the economic impact is not material.
The concern really is whether or not this is a trend with more to come.” In terms of how it will defend itself, China has, for some time, been thinking about the long game.
The clearest example of this is the One Belt, One Road initiative, which whilst already a game changer in terms of its potential to affect global politics, has neatly come at
the time of Trump’s strategic removal of the US from the eastern pacific region. A $1 trillion infrastructure project designed to create a modern Silk Road, which Beijing hopes will inaugurate a “a new era of globalization”. According to global consultancy McKinsey, the project would be of greater size and scale than the US’ post-war Marshall Plan, and would involve 65% of the world’s population, and one third of its GDP. Among the highlights of the plan are planning to create the China-Pakistan corridor, an industrial park in Cambodia and a $1.1 billion port in Sri Lanka. Evelyn Goh of the Australian National University and James Reilly of University of Sydney have noted that this initiative “generates political influence through ‘connectivity power’”, through interlocking states’ interests via huge, snaking transport links and a colossal infrastructure network, yoking water, electricity and energy. It is no surprise that John Kerry in his evaluation of how Trump had opened a door to China commented specifically on this plan: “Through the Belt and Road Initiative China is rapidly expanding its influence and enmeshing nearby countries in a net of roads, ports and waterways and also debts.
Now China is extending the Belt and Road Initiative to the Pakistani port of Gwadar through the China Pakistan economic corridor.
Clearly the goal to dominate the Indian Pacific trade routes.”
Such an expansive project as the BRI requires much more extensive analysis, and will follow. Trump’s first year in politics has been one of predictable unpredictability, a paradox which seems to underpin most of his statements (or tweets, to be more precise). Nonetheless the America First trade policy seems to be one of the only areas in which he has been able to plough forward as he had intended and he has taken to the task with vigour. The reality of ‘trade war’ with Asia and American isolationism has gained traction and January’s tariff introduction may be only the beginning. The irony noted by observers who see China and the US now in traded places - the latter having rapidly claimed the former’s mantle of being the world’s foremost paranoid, protectionist, polluting nation, is far from funny, regrettably. As John Kerry has suggested, America’s loss may well be China’s gain.