Trump backtracks on TPP

US President Donald Trump has indicated that he would be willing to rejoin the Trans Pacific Partnership. Trump had backed out of the agreement in January 2017. The TPP was restructured by the remaining 11 countries to form the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in March 2018.

Background

The Trans-Pacific Partnership was a free trade agreement between countries bordering the Pacific Ocean. The deal was intended to deepen economic ties by reducing tariffs and foster trade to boost economic growth. The signatories were: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. At the time, it was the largest trade agreement in history and the 12 nations comprised 40% of world trade. The agreement was signed in February 2016. Former US President Barack Obama spearheaded the effort for five years before the deal came into effect.

However, the future of the deal came into question after the election of President Donald Trump. Trump opposed multilateral trade pacts during his time on the campaign trail. In 2015, Trump had tweeted, “The Trans-Pacific Partnership is an attack on America's business. It does not stop Japan's currency manipulation. This is a bad deal.” He had called it a “disaster”. Former Presidential candidate Bernie Sanders was also against the TPP, noting that it “threatened” the US democracy. Trump had claimed that the deal was unfair to American workers and farmers. Trump withdrew from the deal on January 23rd, 2017, in his first week in office.

After the United States withdrew, there were concerns that the deal would not survive. The US accounted for 60% of the TPP's combined GDP. At the time, TPP had to be passed by six countries that accounted for 85% of the group's economic output. Thus, with the US backing out of the deal, some experts believed that the deal would go defunct.

However, Japan, the next largest economy in the group, took up a leadership position. Chief negotiators from the remaining 11 countries met in 2017 to determine terms. They also decided on creating a new name for the group. It is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11. The remaining 11 nations officially signed the edited trade pact in March 2018.

Analysis

On Friday US President Donald Trump tweeted, “Would only join TPP if the deal were substantially better than the deal offered to Pres. Obama. We already have BILATERAL deals with six of the eleven nations in TPP, and are working to make a deal with the biggest of those nations, Japan, who has hit us hard on trade for years!”

The tweet came hours after media reports that Trump had directed his trade and economic advisors Larry Kudlow and Robert Lighthizer to investigate the possibility of re-joining the TPP. Republican Senator Ben Sasse of Nebraska said on Thursday that the President “reaffirmed the point that TPP might be easier for us to join now once the TPP-11 is aligned and we might be the 12th party to those negotiations, as opposed to the long process that it took to get to TPP.”

Japanese Finance Minister Taro Aso told reporters that he would “welcome” US participation in the deal, if Trump’s statements were true.  Aso told reporters that Japan’s efforts to restructure the deal “have borne fruit if the United States judged it would be better to rejoin.” Australian, Singaporean, and New Zealand officials have previously been positive on the possibility.

Trump’s reconsideration of the TPP has also seen some support from legislators such as Senator Sasse, who said that it was “good news”. “The best thing the United States can do to push back against Chinese cheating now is to lead the other eleven Pacific nations that believe in free trade and the rule of law,” he said in a statement.

The TPP was conceptualised partly in order to counter China’s economic influence in the Asia-Pacific region. Washington’s withdrawal from the deal was seen by some as a loss of geopolitical influence in the region. While the TPP had covered 40% of global GDP, the TPP-11 covers about 14 %. It has therefore been pointed out that US participation in the deal would significantly improve its impact.

Beijing has claimed that it has a “positive attitude” to transparent deals that adhere to the WTO free-trade system. However, He Weiwen, former counsellor at the Chinese consulate in New York, noted, “The TPP is a geopolitical instrument for America’s Asia-Pacific rebalancing, which is not good for China.” Other Chinese experts, such as Huo Jianguo, former research head at the Ministry of Commerce, said that China had no cause for worry. China has proposed a Regional Comprehensive Economic Partnership for free trade in the Asia-Pacific, which would include India, Japan, Australia, and ASEAN.

Counterpoint

New Zealand Prime Minister Jacinda Ardern, referencing the fact that that a new trade deal had already been negotiated, said, “If the United States, it turns out, do genuinely wish to re-join, that triggers a whole new process.” Members of the TPP-11 have renegotiated the deal to suspend 22 provisions that the United States had favoured, including chapters on investment, government procurement, and intellectual property. Aso also noted that Trump “is a person who could change temperamentally, so he may say something different the next day.” Nguyen Xuan Hai at the Chinese University of Hong Kong, stated that countries such as Vietnam may be “less excited than the first time”, anticipating tough negotiations.

Besides the fact that the deal has been renegotiated, observers have noted that the deal may face additional challenges from US legislators. The Obama administration was unsuccessful in attempts to get the deal approved by Congress. Concerns that American involvement in the deal will adversely affect US farmers and other small businesses remain prevalent; some labour groups have expressed discontent on the matter. Legislators may be bound to represent the concerns of agricultural constituencies, should they emerge.

Assessment

Our assessment is that Trump’s apparent change of heart over the Trans-Pacific Partnership is representative of his strategy. The US President is known to play hardball on multilateral issues. The United States may have backed out of the trade deal in order to re-negotiate the deal on their own terms at a later date. This has been a recurring trend in the Trump Presidency thus far. Washington is currently renegotiating NAFTA terms with Mexico and China as well. The primary challenge may be that the world might have understood the President’s tactics.