Saturday

21st Jan 2017

Opinion

How Trump will redefine trade with EU and Asia

  • China sees the Trans-Pacific Partnership (TPP) as collateral damage of Obama's failures and the Trump triumph. (Photo: Gary Skidmore)

After the US election, the current US free trade plans with the EU and Asia have been suspended. New and revised deals must fulfil the requirements of Donald Trump's incoming administration.

During his campaign, Trump threatened not only to renegotiate or reject Nato, but to pull the US out of free trade agreements.

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Of course, election rhetoric is one thing, and incumbency another. Nevertheless, Trump may seek to keep his word to satisfy his core constituencies in the US.

Trump considers the North American Free Trade Agreement (Nafta) a disaster for ordinary Americans. As a result, he would like to pull US out of Nafta, and perhaps even the World Trade Organisation (WTO). Is that possible?

Trump relies on Nafta’s Article 2205, which would allow the US to pull out “six months after it provides written notice of withdrawal". The deal would remain in force for the remaining parties.

The article, in turn, relies on Title 2135 of the US Code on trade agreement termination and withdrawal authority, which empowers the president to “at any time terminate, in whole or in part, any proclamation made under this chapter”.

In future trade debates, Trump may well use the threat of termination and withdrawal.

Indeed, Trump’s strategic objectives for his first 100 days include free trade that he calls “good as long as it is fair trade”. He believes that US jobs have been lost because of trade deals that incentivised American companies to make things abroad, where environmental and labour protections are minimal and wages are low. Trump pledges to “reverse decades of policies that have pushed jobs out of our country”.

In this view, in their current forms, the EU-US Transatlantic Trade and Investment Partnership (TTIP) and the Asia-US Trans-Pacific Partnership (TPP) are history.

Struggle for free trade in Asia Pacific

Historically, the Trans-Pacific Partnership (TPP) came from a 2005 free trade agreement among Brunei, Chile, New Zealand and Singapore.

Since 2010, Washington has led talks for a significantly expanded free-trade agreement (FTA), which would be a “high-standard, broad-based regional pact” that reflects US alliances in Asia and Latin America – but excludes China.

Since the US election, some of Washington’s TPP partners have sought to push a revised TPP without the US before president Trump can tear up the agreement. Tokyo has a key role in the effort. Despite three lost decades and three years of massive monetary gamble, Japan lingers amid deflation and soaring sovereign debt.

So prime minister Shinzo Abe is seeking to save a version of TPP, a bilateral free trade deal with the US, or join China-led talks for another deal involving the South East Asian bloc ASEAN and its FTA partners Australia, China, India, Japan, Korea and New Zealand.

In turn, China sees the TPP as collateral damage of Obama's failures and the Trump triumph. After the US election, Beijing is also seeking support for an Asia-Pacific free trade area at the Asia-Pacific Economic Cooperation (APEC) summit president Xi Jinping will attend in Peru next week. This free trade proposal is an incarnation of a previous US plan.

In 2006, C. Fred Bergsten, then chief of an influential US think-tank, spoke for the Free Trade Area of the Asia Pacific (FTAAP), which would represent the largest single liberalisation in history.

Oddly enough, the Obama Administration rejected the inclusive FTAAP for the exclusive TPP. China’s view is that the FTAAP, which includes both the US and China, would better serve as a foundation for other regional talks.

Trump trade scenarios

It is high time for Brussels to wake up to the realities. Today, there are three Trump trade scenarios that pertain to the Nafta, the TTIP and the TPP.

Recently, Jean-Claude Juncker and Donald Tusk invited Trump to an EU-US summit in a desperate attempt to reignite the TTIP talks.

In this revised TTIP scenario, Brussels would redefine the current terms of the deal, which would be even less acceptable to most of the EU, but possibly acceptable to the US.

In the compromise scenario, Trump would not quash the proposed FTAs, but would redefine their basic terms, which Canada and Mexico, the EU and Asia-Pacific might ultimately consider a lesser evil than full termination.

In the withdrawal scenario, Trump would push for termination, which would bury the proposed FTAs - but might leave the door open for new deals that would be more acceptable to his administration.

After the 2008-2009 recession, the Trump triumph is neither the first nor the last in the series of nativist political wins in major advanced economies. More will follow in the next few years, particularly in Europe.

In the process, the political weight of those who drafted the initial TTIP in Brussels may well diminish, or vanish.

The times they’re changing.

Dr Dan Steinbock is guest fellow of Shanghai Institutes for International Studies (SIIS), a leading global think-tank in China. This commentary is based on his SIIS project on “China and the multipolar world economy.”

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