What Would US TPP Withdrawal Mean?
Image Credit: Flickr/Gage Skidmore

What Would US TPP Withdrawal Mean?

 
 

On Monday night, incoming U.S. President Donald Trump made headlines around the world when he included U.S. withdrawal from the Trans-Pacific Partnership (TPP) as one of the executive actions he would take upon taking office on January 20 in a transition update to the American people.

“On trade, I’m going to issue a notification of intent to withdraw from the Trans-Pacific Partnership, a potential disaster for our country,” Trump said in a short video message elaborating on some of his policy proposals.

Trump’s comments did not come as a surprise to those familiar with his views on the TPP, a 12-member free trade agreement whose members comprise around 40 percent of global GDP. As I indicated in an in-depth look at what Trump’s Asia policy would look like, his opposition to the pact had been fierce throughout the election, which always made it difficult to believe that he would reverse his position (See: “What Will Donald Trump’s Asia Policy Look Like?”). That view is a product not only of his decades-long skepticism of free trade, but also the domestic climate in the United States where some – particularly members of the white, working class without a college education – are anxious about their relative economic position in an increasingly diverse society.

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Should Trump withdraw the United States from TPP, it would be a disaster for the United States both economically and strategically. Economically, as I’ve written before, Washington would lose out on not just the potential gains from any free trade agreement (FTA), but on a valuable opportunity to write the rules of 21st century trade, including in areas where it would break new ground like state-owned enterprises and the digital economy. TPP, unlike regular bilateral FTAs, has “open architecture,” which means Washington would have been able to attract new members over time and generate a race to the top in terms of trade pacts regionally and even globally.

Strategically, TPP’s failure will reinforce doubts about American credibility in the region amid a rising China, as several Asian leaders including Singapore’s Lee Hsien Loong have warned. It will also undermine Washington’s efforts to strengthen the capabilities of its Asian allies and partners, who desire both diversification in their foreign relations as well as reforms domestically that TPP would have induced. It will also make U.S. Asia policy seem unbalanced, since TPP was the major plank in the economic realm of the Obama administration’s so-called rebalance, even though there were less significant initiatives as well that did not get as much attention.

What happens to TPP after U.S. withdrawal, however, is less clear. Several TPP signatories, including Malaysia and Vietnam, have been signaling that the agreement is essentially dead without the United States, whose inclusion was the very reason why the agreement – which initially began as a pact between just four countries, Brunei, Chile, New Zealand and Singapore – got the heft that it later did. Yesterday, Japan’s Prime Minister Shinzo Abe, who recently became the first foreign leader to meet with Trump, joined this chorus of voices, saying that the TPP “has no meaning” without the United States. As for the United States itself, some have been quick to suggest that the United States would essentially be excluding itself from Asia’s ongoing economic integration and passing the torch of free trade to China.

While the consequences of U.S. TPP withdrawal are dire, it is important not to exaggerate them as some are already doing (See: “Beware the Myth of Warring US-China Trade Pacts”). While China’s economic influence is growing, Asian countries desire diversification, and the United States’ large market is still attractive. TPP also offers the other eleven signatories benefits that other agreements like the Regional Comprehensive Economic Partnership (RCEP) they may end up wanting to preserve in spite of Washington’s withdrawal from it. And though Trump has rhetorically suggested a hard line on TPP itself, we still do not know what his administration will do in terms of economic policy.

It may thus still be too early to declare TPP’s death so soon. As I have indicated previously, there are ways for the countries within TPP to pursue the agreement without the United States should they choose to do so, and even opportunities for Washington to perhaps reenter the pact at some point in the future, whether after some reconsideration or revision during a Trump administration or even under a different administration (See: “How the TPP Can Survive Trump”).

Furthermore, even if TPP does end up dying, there are ways to salvage some of the major benefits of the agreement through other means, including bilateral FTAs. Concluding these will not be easy, especially given the protectionist vibe Trump has given off so far as well as the scarring TPP experience. And in any case, a series of high-standard bilateral deals will not look as impressive as a U.S.-led, single multilateral effort with “open architecture” like the TPP. But for countries like Japan, Malaysia and Vietnam who do not have a bilateral FTA with the United States, unlike other TPP members that do, this might be an option.

This might also be a path that the Trump administration could eventually pursue. Though some missed this, Trump followed his statement on TPP withdrawal in his video message by stressing:  “Instead, we will negotiate fair bilateral trade deals that bring jobs and industry back onto American shores.” If he is actually serious about this and can get U.S. trade policy as well as U.S. economic policy more broadly back on track, that would at least help mitigate some of the damage that a TPP withdrawal would cause.

Meanwhile, as I predicted ahead of the Asia-Pacific Economic Cooperation (APEC) summit in Peru, with the pessimism on TPP from the U.S. side, leaders signaled that regional economic integration would move forward with agreements like RCEP, and Chinese President Xi Jinping predictably waxed eloquent on the importance of openness, fueling commentary that Beijing is seeking to fill the U.S. void. Some of this is again rather alarmist – RCEP, which is hardly even comparable to the TPP, has been moving predictably slowly as well, and the reality of regional economic integration is much more complex than just a zero-sum competition between China and the United States. Nonetheless, perceptions matter, and sometimes they can create their own reality. U.S. withdrawal from TPP is not exempt from this, and should it happen, it will go down as nothing short of a major blow for American credibility and influence in Asia.

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