March 15, 2017 | By Alexander Hitch

TPP May Not Be Sunk After All (And Missing the Boat Could Be Costly)


US President Donald Trump signs an executive order in the Oval Office of the White House in Washington January 23, 2017. REUTERS/Kevin Lamarque

On only his fourth day in office, President Trump renounced the Trans-Pacific Partnership Agreement (TPP), torpedoing the twelve-nation trade deal that was a hallmark of his predecessor’s “pivot to Asia.” However, other countries have not given up on TPP. A summit this week in Chile signals the possibility that a modified TPP-like agreement will proceed without US involvement.

For starters, an amended TPP without American influence will not have US interests at its core. Further, other US prospects for innovative trans-Pacific trade policy are poor. The best current option is a bilateral agreement with Japan, the second largest party to TPP. However, Japan is unlikely to accept an agreement as liberalizing and comprehensive. In exchange for market access to eleven nations, Japan had agreed to reduce high agricultural tariffs and adopt “rules of origin” content requirements which would be significantly less desirable in a bilateral context. And at this point, no reasonable options are even on the table with the other ten TPP signatories.

This is troubling enough. Yet three indirect effects of forgoing TPP are even more worrisome.

China Assuming a Principal Position with Global Trade
 

China – not a party to TPP – is the architect of a concurrent agreement dubbed the Regional Comprehensive Economic Partnership (RCEP) that includes TPP and non-TPP countries, but excludes the United States. Without US support of TPP, China will again market itself as the defender of globalization, using RCEP to bring export-reliant ASEAN nations more directly into its orbit. Moreover, half-hearted US engagement, such as the confirmation that only the ambassador to Chile – not a ranking trade official – will attend the summit, is yet another signal of US plurilateral disinterest. This allows China to assume the mantle as the largest economy willing to trade openly across the Asia-Pacific.

Ceding Influence of the Rules-Based Trading System
 

After the failure of the WTO’s Doha Round negotiations, the US-led TPP was seen as a next step in developing the rule-based order on trade. TPP is often derided for difficult-to-enforce regulatory harmonizing standards and Investor-State Dispute Settlement (ISDS) provisions, which critics claim can undermine national legal sovereignty. However, the agreement also levels the playing field by dismantling tricky technical barriers to trade, develops important labor standards, and provides intellectual property protections that further incentivize innovation. Additionally, TPP removes sticky tariff walls (as with Japan), setting a precedent for future protectionist ascendants to the agreement, such as China and India.

TPP Was Never Only About Trade
 

Intrinsically, TPP deepens trans-Pacific alliances between the United States and partner countries, principally in response to the rising influence of China’s economic and strategic interests. Fast-growing economies such as Vietnam and Malaysia, along with strategic partners such as Australia and Japan, view TPP as not only a US commitment to trade in the region, but also to geostrategic cooperation.

With these costs, it would be nonsensical for the new administration not to reconsider its position on TPP, however politically unpalatable that may be. To do this, it faces two main domestic hurdles.

First, the administration must walk back campaign rhetoric on TPP, which would be hardly novel. Previous administrations have criticized trade during the campaign, and subsequently reneged once in office. Luckily, it already seems to be learning this time-tested political about-face.

Second, it needs to rebuild the domestic image of trade. To garner support in Congress, the administration could rework the most controversial components of TPP while advocating that US trade policy preeminence is in the nation’s security interests. Likewise, it can win public support by pairing a restructured TPP with concessions such as job-training investments for workers in the most threatened industries.

Trumpeting that the new administration can broker deals to save a US-tailored agreement is surely a political win. But as the summit in Chile demonstrates, other countries will not sit idly and wait for the United States to lead.

Even when little seems amiss, an errant torpedo can have profound consequences. 

About

Phil Levy is senior fellow on the global economy at The Chicago Council on Global Affairs. Previously he was associate professor of business administration at the University of Virginia’s Darden School of Business. He was formerly a resident scholar at the American Enterprise Institute and taught at Columbia University’s School of International and Public Affairs. From 2003 to 2006, he served first as senior economist for trade for President Bush’s Council of Economic Advisers and then as a member of Secretary of State Rice’s Policy Planning Staff, covering international economic matters. Before working in government, he was a faculty member of Yale University’s Department of Economics for nine years and spent one of those as academic director of Yale’s Center for the Study of Globalization.

His academic writings have appeared in such outlets as The American Economic ReviewEconomic Journal, and theJournal of International Economics. He is a regular contributor to Foreign Policy magazine’s online Shadow Government section and writes on topics including trade policy, economic relations with China, and the European economic crisis. Dr. Levy has testified before the House Committee on Foreign Affairs, the Joint Economic Committee, the House Committee on Ways and Mean, and the US-China Economic and Security Review Commission. He received his PhD in Economics from Stanford University in 1994 and his AB in Economics from the University of Michigan in Ann Arbor in 1988.

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