Trump And The Trans-Pacific Partnership

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Irawan Ronodipuro
INDEPENDENT OBSERVER

IO – The Trans-Pacific Partnership, or TPP, was originally designed as a big deal.  In fact, it was largely recognized as the largest regional trade deal in history.  Until, that is, U.S presidential candidate Donald Trump came along, incessantly criticizing it for being a ‘horrible’ deal and finally, not long after assuming office, delivered on his campaign pledge to remove the United States from the pact.

Now, after Trump having been in office for a little over one year, Americans and foreigners alike are starting to learn the American president is not immune from flip-flopping on his policy stances.   At the recent World Economic Forum in Davos, Switzerland, Trump was quoted several times in saying he would consider the United States coming back into the TPP if a much better deal would be made.

In this case, Trump should be applauded for his considering a policy reversal.  But how he thinks renegotiations could result in a better TPP for the United States is, frankly, not clear.   As the previous agreement stood, it was, in fact, a very good deal.

The proposed trading bloc, which was former U.S. President Barack Obama’s signature policy initiative in his administration’s so-called ‘pivot’, or rebalancing with Asia, consisted of 12 countries around the Pacific rim with a collective population of 800 million representing 40% of the world’s economic output and trade.  The signatories of the pact included countries stretching along the western side of the Pacific to its eastern extremities:  besides the U.S.A., it included Japan, the world’s third largest economy, the ASEAN countries of Singapore, Malaysia, Vietnam and Brunei, New Zealand, Australia, America’s neighbors Mexico and Canada, and the South American countries of Chile and Peru.

The TPP was impressive not only in terms of the economic giants it incorporated, but also its scope:  in total, over eighteen thousand tariffs were included for being either eliminated or reduced.  And contrary to Trump’s protestations, most mainstream economists concurred it would greatly benefit the United States.  The Peterson Institute, a non-partisan economics think tank based in Washington D.C., estimated the TPP would increase annual real incomes in the United States by US$130 billion and annual exports by US$350 billion over a projected timeline until 2030, which was when the agreement would have been fully implanted.

Michael Froman, who served as Barack Obama’s trade representative from 2013-17 and led negotiations for the TPP, pointed out that significant tariff reductions under the agreement were slated for countries such as Japan, Malaysia and Vietnam, not the United States.   One example is Vietnam, which has a 70 percent tariff on automobiles as compared to a 2.5 percent tariff levied by the United States on its automotive imports.  As Froman said in a recent interview, “if you want to sell autos in Vietnam, you can either tear down the barrier, keep your production in the United States and export the product from here, or you can close your factory here and move it to Vietnam to serve that market.  Our view was that it is better to tear down the barrier to keep production in the United States.”

Although it was initially feared the TPP would fall apart after the United States left the pact, it has been revived and the remaining 11 countries will sign an amended agreement on 8 March in Chile.  In total, the deal will eliminate 98% of tariffs in a marketplace worth around US$14 trillion.

So, the ultimate question is, where does Trump go from here, and, how can he possibly spin his coming back into the TPP without upsetting his base of supporters who are convinced they are better off without the deal?

Here we should be reminded that the original opponents of the TPP, which included not only candidate Trump but also his democratic opponents Hillary Clinton and Bernie Sanders, painted it as an agreement that favored big business and the United States’ trading partners and would inevitably result in job losses at home.

Yet looking at the economics behind the deal and its substance, none of these arguments made any sense.  According to Froman, “opposition to trade is actually less related to the trade agreement itself than to the feeling of economic anxiety in the United States.”   In fact, technology has a much bigger impact on the nature of jobs and on wages in the United States and elsewhere than globalization.  But as Froman said, “you don’t get to vote on technology, and you don’t get to vote on globalization.”

Trump is unpredictable, so it is hard to conclude whether or not he will actually bring the United States back into the TPP. Certainly he should, for it would not only bring long-term benefits to America, it would also boost the global economy in general and the Asian member countries, as well.