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Why Trump’s withdrawal from the TPP is a boon for China

US President Donald Trump yanked the United States out of a major Pacific trade deal Monday, making good on an election campaign promise and delivering a hammer blow to Asian allies

PUBLISHED : Tuesday, 24 January, 2017, 2:09pm
UPDATED : Tuesday, 24 January, 2017, 9:04pm

US President Donald Trump’s formal withdrawal from a long-planned trade deal with Pacific Rim nations creates a political and economic vacuum that China is eager to fill, offering a boost for beleaguered US manufacturing regions while damaging American prestige in Asia.

The move is a sledgehammer blow to former president Barack Obama’s attempt to recalibrate US foreign policy from the Mideast to Asia.

As the Trump administration retreats from the region by ending US participation in the Trans-Pacific Partnership, China’s Communist leaders are ramping up their globalisation efforts and championing the virtues of free trade. In an address last week to the World Economic Forum at Davos, China’s President Xi Jinping likened protectionism to “locking oneself in a dark room” and signalled that China would look to negotiate regional trade deals.

China is advocating for a 16-nation pact being led by Southeast Asian nations that lacks some of the environmental and labour protections Obama negotiated into the Trans-Pacific Partnership, and does not currently include the US.

Xi and other Chinese leaders are also looking to fill the US leadership vacuum, taking advantage of Trump’s protectionism to boost ties with traditional US allies like the Philippines and Malaysia.

“The US is now basically in a position where we had our horse, the Chinese had their horse - but our horse has been put out to pasture and is no longer running in the race,” said Eric Altbach, vice president at Albright Stonebridge Group in Washington and a former deputy assistant US Trade Representative for China Affairs.

China may have the reins of globalisation, but it faces problems at home

“It’s a giant gift to the Chinese because they now can pitch themselves as the driver of trade liberalisation.”

US Senator John McCain, an Arizona Republican who chairs the Armed Services Committee, ripped Trump’s decision. Obama’s last defence secretary, Ash Carter, once said that the Asia-Pacific trade pact would be more strategically valuable than another aircraft carrier battle group in the Pacific.

US withdrawal from the pact “will create an opening for China to rewrite the economic rules of the road at the expense of American workers,” McCain said.

“And it will send a troubling signal of American disengagement in the Asia-Pacific region at a time we can least afford it.”

Obama saw TPP as “much more than an agreement that would increase international trade,” according to Jack Thompson, a senior researcher at the Centre for Security Studies in Zurich.

The pact was a crucial initiative “to build and maintain long-term relationships to reassure the other nations in the region,” he said.

But Trump’s withdrawal “directly undermines all of this careful work and gives China yet another opportunity to demonstrate that it represents the future of the security and economic system in East Asia, and that the US is in decline and can’t be counted on to stick around,” Thompson said.

The Regional Comprehensive Economic Partnership (RCEP) now being championed by China includes Southeast Asian countries, as well as Japan, South Korea, Australia, New Zealand and India.

While it reduces tariffs, it wouldn’t require its members to take steps to liberalise their economies, protect labour rights and environmental standards or protect intellectual property. Developing nations within the agreement are also given more time to comply with regulations that do exist.

“China should grab the chance, which would not last too long because Trump will be sane soon,” said Zhou Shijian, senior researcher at the Institute for International Relations of Tsinghua University

Zhou said it is hopeful that the RCEP could reach a deal by the end of the this year. And he suggested an early signing of the agreement not necessarily involve all 16 countries.

What’s in the TPP that has been omitted from the China-led free trade option?

“If there are 14, or 12 countries agree, the RCEP could be proceeded. The progress should not be delayed by one or two individual countries,” he said.

Leaders from Australia, Malaysia, and other nations who had championed TPP quickly signalled, following Trump’s election, that they would shift their attention to the RCEP.

“It’s an opportunity for China to defer its own reforms and use its own system as a model to draw other countries closer to its orbit,” Dan Ikenson, the director of the Cato Institute’s Herbert A. Stiefel Centre for Trade Policy Studies, said.

When Obama tried to garner support for the TPP in the US, he regularly warned that failure to pass the deal would allow Beijing to replace Washington in driving the rules of global trade. And his Council of Economic Advisers estimated that the passage of the RCEP would lead to the loss of market share among US industries that now export more than $5 billion in goods to Japan.

But the trade deal never had overwhelming support in the US Congress, where many Democrats applauded Trump for withdrawing from it on Monday.

“I am glad the Trans-Pacific Partnership is dead and gone,“ Senator Bernie Sanders of Vermont, who campaigned for president as a Democrat on the same promise to scrap the deal, said.

“For the last 30 years, we have had a series of trade deals - including the North American Free Trade Agreement, permanent normal trade relations with China and others - which have cost us millions of decent-paying jobs and caused a ‘race to the bottom’ which has lowered wages for American workers.”

Trump diplomacy: how will it affect China?

The biggest economic impact will likely be on apparel and footwear importers who would have seen tariff savings as a result of the deal, according to Bloomberg Intelligence analyst Caitlin Webber. Wal-Mart, Gap, and Nike were among the companies who had lobbied for the pact.

Software and entertainment companies like Disney and Comcast will also be deprived new tools to battle privacy and copyright infringement.

“The TPP would have mandated criminal penalties for large-scale violations and guaranteed rights holders the ability to seek losses in civil cases,” Webber said.

“The deal’s copyright term - life of the author plus 70 years - would have mirrored that of the US.”

And it will likely be more difficult for American companies to penetrate Asian supply chains in the future, as relationships are established among the countries participating in RCEP.

The ramifications of Trump’s move could extend beyond trade. Asian leaders are stung that after investing political capital in the US-led trade deal, America was unable to follow through, and have signalled a new wariness that could extend to other aspects of the relationship.

Killing TPP “really undermines the United States” in the eyes of Asian allies, Ian Bremmer, president of the Eurasia group, said.

“They put a lot of effort into it, and now they feel like they can’t rely on the United States,” he said.

Meanwhile, the Beijing has signalled that its willing to negotiate and that countries would be wiser to commit to them.

Countries in both Asia and Latin America are saying that “if they can’t get the US to commit to a deal, then screw it, they’re going to China,” Bremmer said.

Australia, Chile and New Zealand said on Tuesday they hoped to salvage the TPP by encouraging China and other Asian nations to join the trade pact.

Australian Prime Minister Malcolm Turnbull said he had held discussions with Japan’s Prime Minister Shinzo Abe, New Zealand Prime Minister Bill English and Singaporean Prime Minister Lee Hsien Loong about the possibility of proceeding with the TPP without the United States.

“Losing the United States from the TPP is a big loss, there is no question about that,” Turnbull said. “But we are not about to walk away ... certainly there is potential for China to join the TPP.”

The TPP, which has been five years in the making, requires ratification by at least six countries accounting for 85 per cent of the combined gross domestic product of the member nations.

Australia held open the possibility of China, the world’s top exporter, joining a revised deal.

“The original architecture was to enable other countries to join,” Australian Trade Minister Steven Ciobo said.

“Certainly I know that Indonesia has expressed interest and there would be scope for China if we are able to reformulate it.”

Japan has led the push for the partnership, which also includes Brunei, Canada, Chile, Malaysia, Mexico, Peru and Vietnam.

Singapore’s Prime Minister, during his visit to the White House in August, had warned that abandoning the agreement would damage every part of Japanese-US relations, including the military alliance between the countries.

“The Japanese, living in an uncertain world, depending on an American nuclear umbrella, will have to say, on trade, the Americans could not follow through; if it’s life and death, whom do I have to depend upon?” Lee said.

The original architecture was to enable other countries to join
Australian Trade Minister Steven Ciobo

“It’s an absolutely serious calculation, which will not be said openly, but I have no doubts will be thought.”

Influence in the Asia-Pacific region appears less important to the new president than his ability to deliver on a key campaign promise and burnish his image as a champion of American workers.

At his signing ceremony Monday in the Oval Office, Trump called the move a “great thing for the American worker, what we just did.”

Separately, the new Republican president accused Japan and China of engaging in trade practices that he said are “not fair” to American companies. He singled out auto trade with Japan as being unfair.

White House Press Secretary Sean Spicer said the administration would strengthen existing bilateral economic relationships the United States has with many of the TPP nations and look to forge bilateral agreements with those currently without such relationships.

“The beautiful thing about a bilateral agreement is that if any one of the true parties in the agreement decides at any time they want to get out of the agreement, or they’re not being treated fairly, they can renegotiate much easier,” Spicer said.

“In a multilateral agreement, that’s not the case,” he said, referring to the TPP, the China-excluding deal that Trump has called a job-killing “disaster”.

In a meeting with business leaders earlier Monday, Trump stressed he wants “fair trade,” claiming countries such as Japan “charge a lot of tax” on US products.

“If they’re going to charge tax to our countries - if as an example, we sell a car into Japan and they do things to us that make it impossible to sell cars in Japan...it’s not fair,” he said.

Trump also slammed China, saying, “If you want to take a plant or you want to do something, you want to sell something into China and other countries, it’s very, very hard.”

“In some cases, it’s impossible,” he said.

“They won’t even take your product.”

Additional reporting by Reuters, Kyodo and Liu Zhen