In the ruins of TPP, Asia must work harder for market access
24 November, 2016
As appeared in Nikkei Asian Review
U.S. President-elect Donald Trump’s recent confirmation that his first act as president will be to withdraw from the Trans-Pacific Partnership will kill the 12-nation agreement, which is meaningless without the U.S. Only desperadoes will say it can be salvaged.
But how significant is Trump’s proposal to pursue bilateral trade agreements instead? The president-elect says he wants to bring jobs back to America. Would that mean that bilateral agreements would require currency values to be kept within specified parameters? In other comments, Trump has made much of alleged currency manipulation, especially in relation to China.
Would his proposed bilateral agreements relate tariff rates to currency values? Would there be a specified impact on jobs in the U.S. that would have to be taken into account in setting variable tariffs? Arrangements such as these would be completely new to trade deals. Perhaps other linkages could be made in relation to matters such as diplomatic and security issues.
Exactly what Trump has in mind remains unclear, and clarity is unlikely to be provided very quickly. At the best of times, trade deals take a long time to negotiate. But these are not the best of times. If they are to include features of this sort, his bilateral deals are likely to progress extremely slowly. The world should also start worrying about how the incoming U.S. administration will treat World Trade Organization rules — the bedrock of the global trading system. This will become the next $64,000 question.
It is not quite correct to claim, as some critics do, that the demise of the TPP spells the rise of the Regional Comprehensive Economic Partnership, as if the two were in conflict. RCEP is a proposed trade agreement between the 10 member states of the Association of Southeast Asian Nations and the six states with which ASEAN has bilateral trade agreements — Japan, China, Australia, India, South Korea and New Zealand. Negotiations will miss the 2016 year-end target date. But good progress was made at a meeting in Cebu, in the Philippines, on Nov. 4 — before Trump was elected — and President Rodrigo Duterte of the Philippines indicated he wants RCEP to be concluded next year, during Manila’s term as ASEAN chair.
China’s President Xi Jinping has gone further, suggesting during a summit of Asia-Pacific Economic Cooperation group leaders in Lima, Peru, that member states should now look toward a wider Asia-Pacific trade agreement. This would probably look a lot like long-standing proposals for a Free Trade Area of the Asia-Pacific, an idea that was under discussion in APEC (which includes the U.S.) long before Trump emerged as a contender in the U.S. presidential election.
The FTAAP — or something similar — is now likely to be pursued more vigorously, as a sense of urgency about replacements for the TPP grows. Critically, though, Trump’s decision to turn his back on multilateral trade deals suggests that such a wide-ranging deal will likely progress under China’s leadership, rather than that of the U.S.
That will raise further questions about the decline of American influence in the Asia-Pacific. The TPP was part of a rebalancing to Asia pursued by the administration of President Barack Obama. Trade was at the heart of the rebalancing, along with military and security issues, but it was also about affirming the affiliation of the region with an American-led system of values.
The Trump strategy will put an end to that affiliation. But it does not follow that the void will be filled immediately by China. Under Trump, American interests will be pursued in a much more transactional way — Washington will seek immediate and obvious domestic benefits for any deals it makes, leaving more general soft power issues to take care of themselves. It is not clear how this will work, but it is certain that most diplomatic and commercial relationships will become more difficult — including for China.
Asian businesses will have to work harder for market access. That will require a sharper focus on regional markets and economic integration. Asia-Pacific governments will have to think harder about Asian cooperation and the terms of American engagement.
This will be a radically different environment, requiring new approaches and strategies. If it is to trump the Trump revolution, the region needs to start thinking about these issues now. As Americans say, when the going gets tough, the tough get going.
Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.