As of Donald Trump’s inauguration, the most ambitious free-trade deal ever attempted is dead.
Or is it?
Donald Trump appeared to have killed the proposed Trans-Pacific Partnership (TPP), and the seven years of negotiating that went into it, with a YouTube clip soon after the Nov. 10 U.S. presidential election. Trump vowed to formally withdraw the U.S. from the TPP on his first day in office.
And yet, TPP signatories Japan and Australia say reports of the TPP’s death are premature. Japanese Prime Minister Shinzo Abe has not only signed the TPP, as Ottawa and all 12 TPP members have done. Abe has also gone to the trouble, after Trump’s anti-TPP vow, to gain his parliament’s formal ratification of the TPP.
That was wise, as the traditionally free trade Wall Street Journal editorialized at the time. Abe has kept the TPP alive, if in hibernation, giving Trump time to reconsider his position. And Trump may indeed have a change of heart. There are many, mostly unspoken, reasons for that to happen, which will be noted further on.
The Trans-Pacific Partnership (TPP) is a 12-country free trade arrangement embracing about 40 per cent of the global economy. That works out to $ 29 trillion (U.S.), about half again as large as the second-biggest economy, and with a population of approximately 820 million people. The original TPP members included five of the world’s 15-largest economies: The U.S., Japan, Canada, Australia and Mexico.
The TPP is unprecedented in its sweeping mandate. The deal goes beyond acceleration of GDP, jobs and household-income growth in each member country. It is also the most socially progressive trade deal ever. It would enforce high standards of environmental protections, food and other product safety, and workplace conditions – improvements in the life of everyday people never before enshrined in a trade deal.
Because the three members of the North American Free Trade Agreement (NAFTA) are also signatories to the proposed TPP, NAFTA would effectively be rolled into the TPP. That would necessarily minimize the additional benefit to Canada of TPP membership to an estimated 0.1 per cent increase in GDP.
That calculation misses the point, though.
Japan, notoriously protective of its agricultural sector, would for the first time open its huge, lucrative market to exports by Alberta ranchers and Prairie grain growers. Meanwhile, Canadian consumers would for the first time have affordable access to TPP signatory Vietnam’s shrimp, among the most nutritious in the world.
In short, the deal would raise living standards in emerging economies, while reducing cost of living in advanced ones.
The proposed TPP would be a huge step toward the “borderless world,” in which Canadian manufacturers, farmers, lawyers and bankers would be on the same footing as their counterparts in Japan. It complements the gains achieved in the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU.
More important, emerging economies Chile, Peru, Vietnam and Malaysia – all TPP signatories – would be on a “level playing field” with superpower economies America and Japan in, for instance, trade-dispute resolution.
Here’s why Donald Trump may ultimately sign on to a version of the TPP, regardless of what he’s saying about the TPP now:
• Trump wants to boost America’s anemic GDP growth. He also wants to turn America’s admittedly large deficits with most of its major trading partners into surpluses. Indeed, this might be Trump’s No.1 priority.
The fastest rates of GDP growth are in emerging markets. For instance, the economies of the proposed 16-country Regional Comprehensive Economic Partnership (RCEP), spearheaded by Beijing, are expected to post a $ 70-trillion (U.S.) gain in total GDP between 2020 and 2050. That’s an increase of about four times the current size of the U.S. economy.
Mature economies like the U.S. and Canada simply can’t generate that kind of dynamic GDP growth at home. By far the most promising means of boosting economic growth at home is to gain greater access to export markets abroad. And trade deals are the most effective way of achieving that goal.
• There is some confusion about where the Trump administration stands on free trade. Trump’s Secretary of State, Rex Tillerson, the most powerful U.S. cabinet officer and America’s chief diplomat, says he favours the TPP, agreeing with Trump on needed TPP adjustments.
Trump himself is not anti-free trade. He has vowed to strike “America First” trade deals with China and with Britain. But if Trump insists on lop-sided deals favouring the U.S., he will repeatedly come away empty-handed.
Trade deals don’t get done unless they’re mutually beneficial, which is why they take years to negotiate.
• U.S. influence in the Pacific Rim will wane in the absence of the TPP or something very like it. That impotence will become even more pronounced if Japan wholly commits to RCEP, still in the negotiating stage. High-ranking Japanese and Chinese trade officials met in Tokyo last month to advance RCEP.
RECP is a straightforward trade deal, crude by TPP standards. Indeed, trade experts regard it as mostly a Chinese power grab, much like Vladimir Putin’s fledgling trade pact among former Soviet republics. But RECP is geographically vast, linking China with India, Southeast Asia and Australasia. It also risks America’s key ally Japan realigning itself toward Beijing and away from Washington.
A revived TPP is America’s best hope for keeping Japan in the fold, and containing China’s growing economic and geopolitical power. And China is the chief obsession of Washington foreign-policy strategists.
• U.S. influence is also waning in Europe. The far-right xenophobic political movements that have arisen almost everywhere on the continent, and the mainstream politicos trying to co-opt them, each now take more inspiration from the strongman in Moscow than the incoming strongman in Washington.
Trump hasn’t helped by repeatedly tweeting praise for Brexit. Each of those tweets goes off like a stink bomb in European capitals that fret over the possible collapse of the European Union that a British exit might trigger.
• The Trump ego is largely grounded in Trump’s belief that he is among the most skilled dealmakers since Peter Minuit, according to legend, bought Manhattan for $ 24 worth of trinkets. Negotiating adjustments to the TPP, by addressing concerns in many cases shared by Ottawa and other TPP signatories, would enable Trump to claim a rejigged TPP as his own.
Fewer things would bolster the Trump ego than for him to emerge – in his own mind, at least – as creator and strongest voice in the biggest and most ambitious trade deal in history.
The deal would have to be rebranded, of course. The Trans-Trump Partnership has a nice ring to it.