Trump's biggest trade blunder

Adithya Puravankara

On the 23rd of January 2017, surrounded by journalist and filled with a gleaming smile, President Trump signed a memorandum regarding withdrawal of the USA from the Trans-Pacific Partnership agreement (TPP). What followed was a whirlwind of change, with the US adopting an “America First” trade policy, slapping aluminium and steel tariffs on most of the world, tit for tat battles with close allies, a re-negotiation of NAFTA and the start of the US-China trade war. The withdrawal from the TPP seems to have been overshadowed by later events, yet it may have been the biggest tactical blunder in US trade policy during Trumps’ tenure.

Original negotiations for the TPP began in 2008, when the US entered talks with members of the existing Trans-Pacific Strategic Economic Partnership Agreement to discuss trade liberalisation with regards to financial services. What developed was a comprehensive trade agreement with 11 signatories consisting of 40% of the world economy, with 7 other nations announcing interest to join. The original TPP contained measures to lower tariff and non-tariff barriers on over 18,000 goods including the elimination of all tariffs on US manufactured and farm products. It created clauses on good governance (strengthening anti-corruption legislation in member countries), environmental protection (such as outlawing harmful fishing subsidies), protection of intellectual property, and human rights. It also established an investor-state dispute settlement mechanism allowing investors to take nations to court if they failed to adhere to the rules of TPP. Although many economists believed TPP to be beneficial to its member states, it always had its detractors. One of the major complaints is that it gives corporations too much power. Strict guidelines on intellectual property and ability to take governments to court may have allowed large corporations to dominate in the less developed nations of TPP. It could have created an environment for monopiles to form especially in pharmaceuticals. Economist Paul Krugman expressed concerns that TPP may allow large drug companies to gain an advantage by exercising drug patents, causing higher costs for consumers. However, the Doha declaration on TRIPS allows developing nations to circumvent patent rights for essential medicines.

The Trump administrations main beef with TPP is that it ran against its nationalist anti-globalist message. The administration argued that TPP would be bad for American workers, shipping jobs away to countries with cheap labour, driving wages lower in the USA. Much of this was misguided, many of these low value manufacturing jobs that America has “lost” will not and has not come back. Other than Vietnam, the US was set to be the biggest beneficiary of TPP with its large corporations able to gain a foothold in developing Asian and South American markets, creating jobs in the USA. However, the greatest advantage of the TPP is that it would have helped the USA limit China’s influence in the region. Regardless of who becomes President in November the China-US conflict is not going away. TPP would have given America a real chance to increase its influence in the region and counter act many APAC and Oceanic nations’ dependence on China as both a market and supplier of goods. It is clear America has shot itself in the foot. TPP provided a real opportunity for the USA create of coalition of nations, many of whom are growing weary of Chinas ambitions whether it be in the South China sea or its infiltration of private citizens through its burgeoning (State backed) tech sector, to create a unique trading environment to the benefit of its citizens and companies. Instead its isolationist stance has created a window for China to increase its influence in the region making the democracies of Asia and elsewhere ever more dependent on an authoritarian and illiberal state.

Since the US withdrawal the remaining signatories scrambled to salvage what was left creating the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It maintained much of the TPP, though it removed many provisions that were a priority to the USA such as investor-state dispute mechanism. There is a chance that the USA may join the CPTPP after the general election, but it would be joining a less favourable agreement, and countries already part of the CPTPP must be able to trust the USA not to change tack again, trust that may be hard to gain.