TPP: Calculated Risk by Erick San Juan

TPP: Calculated Risk by Erick San Juan

If we have our own ‘change is coming’ ala Duterte style, with President elect Donald Trump of the world’s superpower, changes are coming too and one of these changes is the withdrawal of the US from the Trans-Pacific Partnership Program or TPP.

US President Barack Obama is the one who pushed for the TPP together with his pivot to Asia back in 2011.

The Obama administration and many in the business community view the deal as both an economic opportunity and in some ways a foreign policy one.

In terms of foreign policy, Obama and his team saw the deal as part of a broader strategy to assert American values and interests both in Asia and around the world in opposition to China's growing power and influence.

China is not included in the TPP. Instead, the deal comprises a diverse group of nations (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) that the U.S. wanted to build stronger economic ties with.

Obama argued that by helping write the trade agreement that set policy for a wide group of nations, the United States could push for higher labor and environmental standards abroad. This would benefit American workers, he argued, because it would mean that companies in the TPP nations would abide by workplace standards that more closely resembled those in the U.S. With more equitable workplace standards, there would be fewer incentives for American companies to treat their workers poorly or outsource their jobs abroad.

The administration argued that the more direct benefit for Americans would be expanded and simplified trade with many of these nations. Obama's team estimated the TPP would lift 18,000 tariffs imposed on U.S. products sold abroad. This would lower the price of American-made products abroad and therefore potentially increase their sales, which could create jobs back home.

Obama did not state this so bluntly, but his argument is essentially that the trends that are causing American jobs to disappear — more international trade, technology, globalization, and automation — are not going away, and trade agreements like TPP can help the U.S. thrive in the new economy.

But soon-to-be US President Trump has different views on the TPP.

With the TPP, 12 countries would have been able to share in the perks of this free trade bonanza. That involves the reduction or elimination of tariffs (a tax or duty to be paid on goods), new rules for resolving trade disputes, and the renegotiation of subsidies for the manufacturing and agricultural sectors, among many, many other very complicated things.

Trump’s beef with the TPP is that he claims it will hurt American workers and undercut US companies. His stance on trade is protectionist: he believes that the average American farmer and auto worker has lost out from the fact that labor is cheap in developing countries like China, Vietnam, and Malaysia.

He’s definitely not wrong here—many low-skilled jobs that used to belong to the backbone of American industrial towns have been shipped overseas because, hey, if no one (read: the government) is stopping profit-driven corporations from lowering production costs, what incentive would they have to continue manufacturing products in higher cost jurisdictions like the US?

“Instead of negotiating with 12 countries in the TPP, he thinks he can get a better deal for Americans if there are fewer countries at the table,” says Stuart Trew, trade economist at the Canadian Centre for Policy Alternatives and co-author of “The Trans-Pacific Partnership & Canada: A Citizen’s Guide.” “These are interesting times for trade. Trump is shaking up the orthodoxy.”

Indeed, the TPP has long been touted by critics as a grand American plan to plant their flag in East Asia and counter the perceived economic threat that is China, by getting first dibs in trade negotiations with key growth markets in Asia-Pacific like Australia, Brunei, Vietnam, and Malaysia.

But with the pledge of president elect Donald Trump, to dump or to renegotiate the TPP, a window of opportunity is now open to China.

China is now positioning itself as free trade's new champion and seizing economic leadership of the Pacific Rim.

Under President Barack Obama the TPP was sold as a way to counter China's rise, and its possible demise is now viewed in China as a US retreat from the region.

Chinese President Xi Jinping has seized the opportunity at the APEC summit last weekend and pushed his own free trade vision, the Regional Comprehensive Economic Partnership (RCEP).

It involves 16 countries including Australia and Japan, but excludes America.

Mr. Xi is pushing to make it bigger and is leaving the door open to Latin American countries like Peru who are keen to benefit from the growing economies of Asia.

The move would be a massive boost for China's plans to shift the existing US-dominated world economic order.

With billions of dollars on offer, China is trying to supplant the World Bank and the IMF with its Asia Infrastructure Investment Bank.

Now that China is picking off ASEAN countries one by one through the Regional Comprehensive Economic Partnership (RCEP), will China rise as the new economic power using its cash diplomacy?

Malaysian Prime Minister Najib Razak signed off on US$34 billion ($46 billion) in trade and investment agreements.

A couple of weeks earlier, Philippines President Rodrigo Duterte signed US$13 billion ($17 billion) in trade and aid deals.

Cambodia was already on side but to secure support Beijing offered 31 trade agreements and US$300 million ($406 million). Now attention is turning to Thailand, which since its military coup in 2014 is tilting towards China.

One by one China is picking off the ASEAN countries that were traditionally aligned to America and united against China's territorial claims in the South China Sea.

China's control in the South China Sea is as much about economics as it is national pride. About US$5 trillion ($6.7 trillion) — or half the world's trade — moves through the waters of the South China Sea.

Controlling and regulating those waterways will give China enormous power in setting the economic rules of the game.

To achieve this China is breaking the template that has been in place since the end of Word War II — most Asian nations accepted American security guarantees and were then left to focus on economic growth, stability and prosperity.

In the new Chinese order the remaining ASEAN countries face a choice. If they want to benefit from China's chequebook diplomacy then the cost might be to accept China's claims over the South China Sea.

At the end of the day China hopes to cleave ASEAN from America's grasp and make the United States strategic pivot back into Asia unworkable.

They are counting on Donald Trump as president advocating a more isolationist stance.

Although Trump’s administration will begin in January 2017, the present confluence of events might lead to global financial crisis beginning with the US Federal Reserve possible rate increase and the outcome could be devastating to at least four big national banks including the European Union and China.

And if this means trouble, is the inevitable global war still in the offing? And as a nation, are we prepared?


Research Sources:

Here's why Trump hates the Trans-Pacific Partnership so much
By Vanmala Subramaniam, VICE News
Nov. 25, 2016

Trump's Pledge to Dump the TPP Just First Step in Anti-Trade Agenda
by Perry Bacon Jr. (NBC News)
November 23, 2016

Trans-Pacific Partnership: China seizes trade opportunity after Donald Trump's threat - Analysis
By China correspondent Matthew Carney (ABC News)
November 24, 2016