And the winner is... China

Wednesday, November 23, 2016

It was no surprise that US present-elect Donald Trump, in outlining plans for his first 100 days in office, pledged to pull out of the Trans Pacific Partnership. In fact, it would have been a major surprise if he had not done so, not least as the TPP was part of Barack Obama's legacy.

Trump had previously lambasted the wide-ranging trade and investment deal agreed by 12 countries including Mexico, Peru and Chile, along with Japan, Canada, Australia and others as well as the US and which together account for 40% of the global economy. The next US president, who said he would quit the TPP on his first day in the White House, had described the agreement as a "catastrophe" and was equally vehement during his campaign about other trade deals including Nafta.

Trump has claimed the TPP would allow China to take advantage of the US, saying in June the deal, which has yet to be ratified by the signatories, is "another disaster done and pushed by special interests who want to rape our country." The reality, however, is that the TPP was specifically designed to counter the influence of China in the Pacific region, and the country is excluded from the pact.

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Despite talk at the recent APEC summit in Lima that efforts would continue to bolster free trade in the region with or without Washington, it seems the TPP's demise is set to be confirmed. Japan's Prime Minister Shinzo Abe – who was the first world leader to meet Trump post-election – said the pact was "meaningless" without the United States' involvement.

The irony now, of course, is that the US pulling out, leaving the TPP dead in the water, gives the Chinese free rein in the Pacific to pursue its own free trade initiatives, such as the Regional Comprehensive Economic Partnership and the Free Trade Area of the Asia Pacific.

Trump's initial plans were not all doom and gloom for free trade buffs, however. For a start, despite blasting the 1992 agreement between the US, Canada and Mexico, he did not mention Nafta when outlining his plans for the first 100 days, and it looks increasingly likely that he will push for changes to the deal rather than its total collapse. Two-way trade between the US and Mexico has risen by about six times since Nafta took effect to nearly US$600bn last year, although US imports have risen a lot faster than exports and Trump has blamed the agreement for American job losses. However, US corporate lobbying will likely play a major role in persuading Trump not to tamper too much with the pact. According to the commerce department, 1.1mn US jobs depend on exports to Mexico, and many of the car assembly plants in the country that have benefited from Nafta are owned by US companies.

What is more, Trump promised to negotiate "fair bilateral trade deals" with individual nations, although no details were provided.

In the meantime, China – the same China who Trump said invented climate change to hurt US industry – will have the upper hand when it comes to free trade in the Asia Pacific region. It's perhaps no coincidence that Trump made the TPP announcement just as Chinese President Xi Jinping was in Latin America, taking advantage of the APEC summit in Peru to also visit, and presumably attempt to wield influence in, Chile and Ecuador too.