TPP survives but Donald Trump’s retreat from globalisation is likely to remain, creating an opening for China to take the lead

Shooting oneself in the foot is par for the course in poor countries, but rich countries usually know better. This has not been the case recently. US President Donald Trump has withdrawn his country from the Trans-Pacific Partnership (TPP), forced a renegotiation of the North American Free Trade Agreement (Nafta), raised tariffs on US$250 billion worth of Chinese exports and imposed quotas on steel and aluminium under the guise of national security threats.

This protectionist wave has created headwinds against the American economy and rippled through international markets, pushing down stock prices and disrupting global supply chains. The Shanghai Composite Index is at a near four-year low and yuan has slid more than 7 per cent in 2018 partly because of the effect of US tariffs on U$250 billion of Chinese exports.

Meanwhile, the TPP has moved ahead without the US. The agreement initially covered 40 per cent of the world’s GDP and although that has been reduced without the US, the pact will come into effect at the end of the year and remains a meaningful agreement. Of course, its importance may yet be superseded by the Regional Comprehensive Economic Partnership (RCEP), a multilateral agreement led by China.

The US could still reverse course on the TPP but it is unlikely. For politicians, trade agreements are similar to public infrastructure projects: they crave shiny new things and rarely show the willingness to improve on old ones. And there is no chance the US will reverse course before Trump leaves office.

The 45th President of the US might seem erratic on many issues but not on trade. Trump and Peter Navarro, his main adviser regarding trade policies, have been unrelenting in their drive to reduce America’s trade deficit, even at the expense of the well-being of average Americans.

There is a joke that says that 99.99 per cent of all economists favour free trade and the rest are Peter Navarro – and there is some truth to that. Trump’s trade war is hurting the people he promised to help. Tariffs are hurting some of America’s biggest companies, such as Apple.

The Chinese tariffs alone may cost the US more than 94,000 jobs. A precious few companies stand to benefit but most American companies lose by the spike in input prices, a weaker yuan and fewer sales due to rising prices for consumers.