Fulfilling his campaign promise, President Trump has pulled the US out of the ambitious free trade deal negotiated by his predecessor Obama. Analysts view China as the prime beneficiary of the US’ abandonment of TPP.
In one of his first acts as president of the United States, Donald Trump on Monday ended the US’ participation in the expansive 12-nation Trans-Pacific Partnership (TPP) free trade agreement, a linchpin of his predecessor Barack Obama’s Asia-Pacific strategy.
Trump called the move a “great thing for the American worker.”
The decision, however, has cast a dark pall over the survival of the ambitious trade deal, involving 12 Pacific Rim nations – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States – which account for around 40 percent of the global economic output and 26 percent of world trade.
Still, leaders of some of the 11 other countries party to the agreement have reiterated their support to the TPP and are looking for ways to salvage the pact.
An alternate arrangement
Calling the US’ withdrawal “a big loss,” Australian Prime Minister Malcolm Turnbull said Tuesday he believed the pact could still survive without the US, and floated a “TPP 12 minus one” arrangement going forward.
The Australian government also suggested that China could replace the US in the TPP bloc, with Trade Minister Steven Ciobo quoted by the Australian Broadcasting Corporation as saying: “There would be scope for China if we were able to reformulate it to be a TPP 12 minus one, for countries like Indonesia or China or indeed other countries to consider joining.”
New Zealand Prime Minister Bill English also said that Beijing “hasn’t been slow to spot the opportunity” to cast itself as a free trade supporter.
But not everyone is enthusiastic about going forward with the TPP by replacing the US with China. Japan’s Prime Minister Shinzo Abe, who invested a lot of political capital over the deal, told lawmakers in Tokyo that he hoped to raise Trump’s awareness about the strategic importance of the trade agreement.
It’s also unclear if China would consider any invitation to become part of the TPP bloc. Experts believe that China is currently not prepared to meet the high standards of free trade and investment envisaged in the TPP.
TPP vs RCEP
Meanwhile, Beijing is already playing a leading role negotiating the Regional Comprehensive Economic Partnership (RCEP) agreement, a free trade deal that is widely regarded as a rival to the TPP.
“We are ready to work with all parties concerned to continue to promote … economic integration in the Regional Comprehensive Economic Partnership,” Chinese Foreign Ministry spokeswoman Hua Chunying said on Tuesday.
The RCEP brings together the 10 members of the Southeast Asian grouping ASEAN plus China, India, Japan, South Korea, Australia and New Zealand, but notably excludes the US.
There are considerable differences between the TPP and the RCEP deals. The TPP is a far-reaching pact, aimed at dismantling tariff and non-tariff barriers to trade and investment among the participant countries. It also foresees streamlining regulations, and the implementation of common standards for the protection of foreign investment and intellectual property, among other things.
The RCEP, on the other hand, is a much more narrowly conceived trade agreement, whose key aim is to lower tariffs among the participating nations.
“There could be some increased trade, but it should be clear from the very beginning that the RCEP deal will not be as beneficial as the TPP because it’s a much less ambitious and less comprehensive agreement,” Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics, told DW.
“It’s not a good replacement of or substitute for the TPP,” he added, underlining: “Although it might give some impetus to trade, I would say that the increase in commerce would be relatively shallow as the scope of the agreement being negotiated remains quite limited.”
However, closer economic ties with China through the RCEP have the potential to provide a significant boost to the rest of Asia, Gareth Leather, senior Asia economist at Capital Economics, a London-based research firm, wrote in a report. “For large parts of Asia, China is already a bigger export market than the US, and its growth prospects are much better. By including Korea as well as the rest of ASEAN, more Asian countries are included in the RCEP talks than the TPP,” he pointed out.
Rising Chinese clout
Furthermore, the RCEP pact’s salience for Asian trade has grown significantly following the US’ move to ditch the TPP, giving an opportunity to Beijing to expand its influence across the region at the expense of Washington. Observers also stress that it allows China to emerge as the unchallenged economic power in Asia and determine the rules for trade and investment in the region going forward, a development that would vindicate former US President Obama’s warning that China would step into the economic vacuum the US would create if it failed to complete and ratify the TPP.
Experts like Edward Alden, a senior fellow at the Washington-based think tank Council on Foreign Relations (CFR), say that China would have been “relatively disadvantaged” by the TPP, and “faced with the difficult choice of conforming to TPP rules or watching its investment share shrink.”
But with his move, Trump “has just unilaterally given away the biggest piece of leverage he had to deal with the biggest challenge in the world of trade, which is the increasingly troubling behavior by the world’s second largest economy, China,” the analyst pointed out in an article published by the CFR.
China, however, is not the sole beneficiary of the US’ exit from the TPP. Countries like the Philippines, South Korea and Thailand, which are not part of the TPP, are also considered to profit from the development. “These countries would have seen their growth prospects suffer if the TPP triggered the formation of regional supply chains which excluded them,” said Capital Economics analyst Leather.