A big free-trade deal’s demise leaves a worrying void in Asia
DEPENDING on who is talking, the Trans-Pacific
Partnership (TPP) is either the world’s most ambitious trade deal or the most
dangerous. But these days a simpler description suffices: it is dead. With
Donald Trump’s victory, America has abandoned TPP, in effect killing the trade
pact that was a decade in the works and nearly complete. Amid all the unknowns
about what Mr Trump’s presidency might mean, this is one of the few
certainties.
The consequences are far-reaching. TPP’s collapse
removes the main economic plank of Barack Obama’s much-hyped, largely abortive
“pivot” to Asia. It leaves a gaping hole in the architecture of Asian commerce.
And it adds to the strong headwinds that are buffeting global trade.
The chances that America would ratify TPP had already
been dwindling because of growing opposition. If Hillary Clinton had won the
election, Mr Obama might have made a last-ditch push during the lame-duck
session of the outgoing Congress, which started this week. With the triumph of
Mr Trump, who has called TPP a “terrible deal”, even that faint hope has
vanished.
On the basis of size alone, TPP would have been
important, the largest regional trade deal in history. It encompassed 12 Pacific
countries, including America, Japan and Canada (see chart). Together, they
account for two-fifths of the world economy. But what made it all the more
significant was its strategic intent. Notably absent from the membership was
China. Economically, this made little sense. Studies indicated that including
China, the world’s biggest exporter, would have substantially expanded the
benefits of TPP. But America wanted to show that it could set Asia’s economic
agenda. China might eventually have been invited to join TPP, but only after
America had written “the rules of the road”, as its negotiators liked to
say.
Rather than a conventional focus on
cutting tariffs, TPP emphasised stronger safeguards for intellectual property,
the environment and labour rights (detractors felt it went too far on the first
and not far enough on the other two). Matthew Goodman of the Centre for
Strategic and International Studies, a think-tank, considers its collapse a
“body blow” to American economic policy in Asia.
It is also a blow to the global economy.
Over the years rich countries have cut tariffs to the point where the main
obstacles to commerce now lie in regulations that discriminate against foreign
companies. TPP took aim at barriers hidden in government-procurement guidelines
and investment restrictions. It would have raised the bar for future trade
deals, says Jayant Menon of the Asian Development Bank: “That’s where the
biggest loss lies.”
Global trade is on track to expand more
slowly than world GDP this year for the first time in 15 years, according to
the World Trade Organisation. In Asia exports are set to grow just 0.3% this
year in volume terms, well below the 8% average of the past 20 years. For
poorer countries, exports have long been the most reliable way to kick-start
development. That route now looks less accessible. If Mr Trump keeps his threat
to slap fearsome tariffs on Chinese goods, the fallout could easily tip global
trade into outright contraction.
There are a few candidates to fill the
void left by TPP. One possibility is that the 11 remaining governments forge
on, minus America. Having agreed to the deal in February, they were on the cusp
of ratifying it (Japan did so this month). But the withdrawal of America is
likely to prove fatal. When countries made difficult concessions—for instance,
Japan’s opening to more foreign rice and beef—it was with a view to expanding
their access to America’s vaunted consumer market. Take that out and the
incentive to give ground in other areas quickly dissipates.
The focus is shifting to whether China
might step in with an alternative trade deal. Chinese officials have vowed to
push for an even larger regional pact called the Free Trade Area of the
Asia-Pacific (FTAAP), tying together 21 countries including America. It will,
however, go nowhere. Opposition in America to an American-led deal was already
fierce enough; it would be even fiercer to a China-led one.
Optimists can at least point to one
trade pact that is close to completion. The Regional Comprehensive Economic
Partnership (RCEP) includes China, India, Japan and South-East Asian countries.
It covers nearly a third of the world economy and a much bigger share of its
population than TPP. But RCEP is far less ambitious, focusing on the basic
business of cutting tariffs, rather than more complex regulations. Tariffs are
still high in Asia, so lowering them would help. But He Ping of Fudan
University in Shanghai, who has monitored the talks, expects few breakthroughs.
India, a perennial sceptic on free trade, has been dragging its feet and others
are wary of China’s export juggernaut. A weak RCEP will do little for Asia,
even if China relishes the opportunity to show that, unlike America, it can
bring deals to fruition.
For Asia’s reformers, there is thus no
getting around the disappointment of TPP’s demise. Vu Thanh Tu Anh, a
Vietnamese economist, says that Vietnam had hoped to use the deal to pressure
sluggish state-owned companies to shape up. Shinzo Abe, Japan’s prime minister,
viewed it as part of his programme of structural reforms, since it would have
exposed coddled Japanese industries such as health care and agriculture to more
competition. Even in China, liberal officials thought TPP might prompt the
government to loosen its grip on markets in order to join one day.
Big regional trade deals are,
mercifully, not the only show in town. There has been a bewildering array of
smaller, often bilateral, pacts in recent years. Asia now has 147 free-trade
agreements in force, up from 82 a decade ago. A further 68 are under
negotiation. From the perspective of trade theory, these are suboptimal: a
jumbled, overlapping mess. In practice, they may well be Asia’s best hope for
getting more goods and services to flow across borders.
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