A post-TPP America

After ditching the Trans-Pacific Partnership last January, questions remain on how the Trump administration will engage with major global economies.

   Since President Trump withdrew the United States from the Trans-Pacific Partnership (TPP) immediately after taking office, several questions have arisen about Washington’s official approach toward international economic relations.
   Despite quick announcements in the fledgling days of the Trump administration of intents to negotiate new bilateral deals, the only tangible sign that any such talks could start is U.S. Trade Representative Robert Lighthizer’s statement during a January radio interview that the administration will probably move toward entering into one with a “properly selected” African country.
   That free trade agreement, “if done properly,” could be a “model” for other bilateral deals in the region, Lighthizer said.
   “I don’t see one [African country] leaping out there as an appropriate one” to negotiate a trade deal with, said Center for Strategic and International Studies Scholl Chair in International Business William Reinsch, speculating that Nigeria could potentially be a rational choice, given that it is the biggest economy on the continent.
   But open questions remain as to how the administration will engage with major global economies, and whether it will simply follow the general most-favored-nation tariff system brokered by the World Trade Organization (WTO) as the 11 remaining TPP nations move closer to finalizing their arrangement.
   The North American Free Trade Agreement (NAFTA) renegotiation is extending far beyond the original end-of-2017 deadline that many officials had admitted was ambitious, as six rounds of talks haven’t yet produced any definitive bellwethers for how the conduct of North American trade will change after talks. People close to the negotiations have reportedly said the talks could progress into 2019.
   The United States and South Korea have also opened up their bilateral trade agreement (KORUS) to discuss potential modifications and amendments to address the automobile trade, market access, and other issues.
   Amid this two-theater backdrop, where does potential U.S. involvement in TPP stand? And what considerations should be taken into account about the totality of the pact’s forward trajectory, with a U.S. administration apparently still settling its strategy for economically engaging other nations?
   Officials from the 11 member governments of the sans-U.S. TPP plan to sign the updated deal on March 8 in Chile.
   The TPP member governments, which include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam, have agreed to suspend original provisions pertaining to areas including customs and trade facilitation, environment, intellectual property (IP) rights, public procurement, and investment, language that had been added at the insistence of the United States.
   Adding perhaps more convolution to the situation, Trump, speaking during the World Economic Forum in Davos, Switzerland, late January and in a CNBC interview on the conference’s sidelines, articulated a conditional openness to renewing TPP talks.
   “As I have said, the United States is prepared to negotiate mutually beneficial, bilateral trade agreements with all countries,” Trump said during a speech at the forum. “This will include the countries in TPP, which are very important. We have agreements with several of them already. We would consider negotiating with the rest, either individually, or perhaps as a group, if it is in the interests of all.”
   In his CNBC interview, Trump said he would consider reentering TPP if significant improvements were made, diverging from previous categorical condemnations of the pact.
   To be sure, however, Trump did say during the interview that, “The deal was terrible. The way it was structured was terrible,” after stating “I’m only saying this: I would do TPP if we were able to make a substantially better deal.”
   Trump talking once about a potential U.S. entry into TPP isn’t all that compelling, but “if he says it two or three times, you have to take it seriously,” Reinsch said.

   Also worth noting is that Trump, during his State of the Union address in late January, said the United States will negotiate new trade deals with fair and willing partners, without specifying what form the pacts would take.
   If indications can’t be reliably derived from statements, perhaps some can be deduced from current personnel in executive branch positions.
   While Trump, Commerce Secretary Wilbur Ross, and Treasury Secretary Steven Mnuchin have at various points voiced a preference for bilateral free trade agreements, it’s important to note, for one, that several trade officials who contributed to the TPP negotiation on behalf of the United States still remain in key positions, including in the Office of the U.S. Trade Representative (USTR).
   The mere fact that they have continued to work in the Trump administration doesn’t, on its face, imply that a closed-door plan is actively being hatched to direct the U.S. toward eventual TPP membership. But the composition of the administration’s trade personnel pool, in tandem with Trump’s Davos statements, raise the question of whether there would be any movement in the executive branch toward reapproving TPP, including positively advising Trump, if he continues to signal amenability to the deal at a time when the United States is updating NAFTA with two current TPP members.
   Reinsch said “normally the career people follow the political leadership’s lead,” but he “wouldn’t rule it out” that original TPP negotiators still in government could be privately championing the pact away from the limelight of public informal statements, announcements, and visible official actions.
   That possibility hadn’t occurred to Reinsch until posed with the question, he said.

Wishful Thinking? Peter Friedmann, a lobbyist for several trade associations and executive director of the Agriculture Transportation Coalition, downplayed the notion of there being any semi- or fully organized push by tenured government officials for Trump to revisit TPP.
   Such a move would more likely come from cabinet officials weighing how to make the United States as competitive as possible in the face of a globalizing world and a fierce economic rival in China, Friedmann said.
   Trump “hears from a lot of people in his administration,” Friedmann said. “I’m talking about people that are his cabinet, people that support him. They want trade, trade expansion, trade growth, whether it’s through TPP or bilaterals. They want it all.”
   Ross and Mnuchin are “pro-trade advocates” who could be open to multilateral deals as the administration grapples with the global strategic and economic landscape, Friedmann said, though Reinsch disagreed about Ross.
   There’s a good possibility of Cohn and Mnuchin moving in favor of TPP, but “it’s hard to see Ross” buying into it, Reinsch said, as Ross has consistently expressed harsher views toward multilateral free trade agreements.
   USTR and the Treasury and Commerce departments didn’t respond to requests for comment.
   Friedmann and Michael Stumo, CEO of the Coalition for a Prosperous America (CPA), a nonprofit that promotes national economic sovereignty, agreed that any pro-TPP contingent in the Trump administration likely includes National Economic Council Director (NEC) Gary Cohn, who previously worked for Goldman Sachs and views trade at least partly through the lens of his Wall Street experience.
   An NEC spokesperson said in an email that Cohn “is, of course, supportive” of Trump, yet added that Cohn feels the TPP could be a good agreement to pursue “if substantial improvements [were] made.”
   Cohn has always been supportive of TPP, and he might be gaining traction toward U.S. ratification, but “I don’t see the personnel to do it,” as senators have held up several trade nominees while a handful of executive branch trade enforcement investigations continue, Stumo said.
   The administration is conducting NAFTA and KORUS negotiations, as well as investigations into the national security impacts of steel and aluminum and China’s forced technology transfer policies, in which affirmative findings could statutorily authorize U.S. retaliation.
   At the end of 2017 and beginning of 2018, a few senators slowed the confirmation process for several trade nominees.
   Sen. Tim Scott, R-S.C., in January announced he would hold all trade nominees over unspecified concerns about USTR engagement with his office. Sen. Jeff Flake, R-Ariz., in early February lifted a hold he put on USTR Chief Agricultural Negotiator nominee Gregg Doud in November over concerns about potential retaliation against a U.S. NAFTA proposal to make it easier for certain U.S. agricultural producers to petition for duties during winter months. Senate Minority Leader Chuck Schumer, D-N.Y., in November announced holds on Commerce Undersecretary for International Trade nominee Gilbert Kaplan and Commerce Assistant Secretary for Industry and Analysis nominee Nazakhtar Nikakhtar.
   Delaying actions like this mean there’s less potential for the U.S. to take an ambitious negotiating approach, Stumo suggested.
   Also noteworthy is that Peter Navarro still stands as White House director of trade and industrial policy. He has forcefully opposed multilateral trade agreements and advocated for reducing U.S. trade deficits.

Trump’s TPP Take. But what about the man at the top of the executive branch?
   Trump has “been all over the map” on several issues, including immigration and health care, but “on trade, he’s been saying the same things for 30 years,” whether he’s been a “candidate or not [a] candidate,” Reinsch said. “He’s got pretty fixed views on trade, and I just don’t see that changing.”

   Despite Trump’s warm TPP statements in Davos, “it’s hard for me to believe that he would voluntarily come to that conclusion after all the things he’s said for such a long time,” Reinsch said.
   But historical presidential examples of 180-degree shifts in approaches toward free trade agreements are a precedent for TPP supporters to be optimistic, Friedmann said.
   For instance, President Clinton campaigned against NAFTA before the deal was finalized in the second year of his first term, Friedmann said.
   Trump is “a little bit caught between a campaign promise, and what he sees, now that he’s president, he needs to do. It’s not that unusual,” he said.
   Stumo said Trump will likely stick to his campaign promise to keep the United States out of TPP, and U.S. entry into the agreement would cause a “big split” among Trump’s base, especially in Midwest “industrial states,” like Michigan and Ohio.
   “You still have a significant part of the… ‘free trade,’ ‘free markets,’ ‘freedom,’ U.S. Chamber of Commerce, country club crowd; and then you have your more economic nationalist, working-class faction,” Stumo said. The latter voting bloc is “increasing. In fact, they took some of those from the Democratic party, which is moving more college-educated and urban.”
   Entering into a TPP that could increase the U.S. trade deficit, after it rose in 2017, if it were to absorb a few minor improvements, such as a smattering of updated IP provisions, would not “seem politically smart” for Trump, Stumo said.
   TPP became a hot topic during the 2016 presidential campaign, as both Trump and competitor Hillary Clinton came out in opposition to the pact.
   Part of the reason for TPP’s central role in the contest could be due to the fact that gains from trade are more widespread and the hits from trade—such as job shifts—are more concentrated amid the national workforce, said Jackie Varas, director of immigration and trade policy for conservative, free-trade think tank American Action Forum (AAF).
   “I can’t speak to how public opinion will react” to a potential U.S. reentry into TPP, Varas said. Rather, she is more focused on explaining to people AAF’s recognition that free trade benefits U.S. workers through “productivity gains, higher quality goods for U.S. consumers, and even higher wares resulting from those productivity gains.”
   But the TPP-11 countries likely wouldn’t reinstate the suspended text—most of which were originally U.S.-favored IP provisions—just because the United States rejoins, Reinsch said.
   “If we get back in, it’ll be on inferior terms,” he said. “What you’re going to get are weaker IP rules than we negotiated when we were one of the 12.”
   The current 11 TPP members would probably welcome the United States back, but they won’t wait, Reinsch said.
   There’s a somewhat decent chance at least part of what Trump has in mind for “significant improvements” are more short-term foreign market access concessions, but he might have an unrealistic view of how critically countries view such compromises, Reinsch said.
   Concessions in areas like agriculture have “huge political implications” for other countries, he said.
   Varas agreed that Trump might be seeking such concessions, noting that he has cited Japan by name when discussing foreign market access challenges. Japan’s high beef tariff would’ve been substantially cut for U.S. exports under TPP, she said.
   Average tariffs on imports into Asia-Pacific countries are much higher than the United States’ average 1-1.5 percent import tariff, so a U.S.-inclusive TPP provides the potential that overseas economies will see much greater tariff reductions than the United States.
   But even if the United States were to get net concessions through a revamped TPP, Stumo believes there’s little reason to think such an arrangement would help grow U.S. jobs and wages.
   Still, Trump has never specifically stated how provisions must be crafted to garner his approval for entry into a trade pact.
   “That’s one of the ironies of this whole conversation—[TPP] and NAFTA, too,” Reinsch said. “He keeps saying these are terrible deals, but he never says why.”
   Stumo’s perspective could be one potential indicator of the Trump FTA standard.
   CPA is chaired by Dan DiMicco, the former Nucor Steel CEO who led Trump’s trade transition team, and the group has backed Trump’s “America First” trade agenda since the campaign.
   The best argument for U.S. entry into TPP will be that it will lower steep Japanese tariffs in a country with a population of 127 million, Stumo said.
   “That really seemed right” when the United States started negotiating the multilateral pact, he said.
   But the economic performance of “strategic mercantilist economies,” like Japan, China and South Korea, has had a weak correlation with liberalized trade policies compared with free-market countries, Stumo said, which are more interdependent on other nations and rely less on central planning.
   Although the United States posted net benefits in terms of market access concessions provided through KORUS and China’s 2001 accession to the WTO, the latter action “mushroomed” the U.S. trade deficit, Stumo said.
   China’s accession provided a “massive onramp” for the nation to export more products to the United States, displacing U.S. producers’ ability to sell at home and not providing an adequate means for U.S. producers to recoup the lost sales through countervailable sales to China, he said.
   The U.S. trade deficit also worsened after entering into KORUS, despite South Korea cutting more tariffs than the United States, Stumo said.
   Exchange rates are also a “substantial, but not exclusive part” of how these situations occur, he said.
   As U.S. decision makers decide how the administration will proceed with regard to TPP, ambassadors from TPP member states Chile and Singapore said during a Jan. 24 Washington International Trade Association (WITA) panel discussion that they would welcome the United States to rejoin.
   “We continue to believe that it is essential that the U.S. be part of this agreement,” said Juan Valdes, Chile’s ambassador to the United States. “We believe that, at some point, this will happen.”
   TPP members could eventually agree to put the currently suspended provisions back on the table, Valdes said. He noted that the TPP process hasn’t been merely a trade effort, but also a geopolitical and strategic effort to introduce “standards that will be the mandate” for partners in the Asia-Pacific.
   Kumar Mirpuri, Singapore’s ambassador to the United States, distinguished the TPP being considered in its current form with the U.S.-included version, describing the current one by the formal name that Canada, now leading talks, chose for it: the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
   The current 11 parties suspended, instead of eliminating, provisions that the Obama administration had negotiated, because they wanted to keep those principles alive, should the United States decide to reenter someday, he said.
   “Having the U.S. come back in some sort of framework that they are comfortable with is very important,” Mirpuri said. “We have kept the TPP generally as it is, which is why we had to rename it the CPTPP, because it’s not the TPP. It is a TPP agreement, using TPP principles, but with some elements suspended. And when the U.S. comes back, we can reshape it again.”
   Australia’ ambassador to the United States, Joe Hockey, said his country would also reaccept its ally as a member of TPP, as he spent a large portion of an hour-long Feb. 5 WITA speech at his embassy in Washington making the case for why the United States should consider such a move.
   It would be difficult for the existing 11 TPP members to get reapproval from their respective legislatures to reenter negotiations with the United States as part of any effort to readmit the withdrawn signatory, Hockey noted. But the deal’s architecture—at least officially—accommodates any nation that wants to join, he added.
   How and whether suspended provisions would come back into force would be a matter for negotiation, and different countries would likely have different demands, Hockey said. Other factors that could impact TPP’s future are expressions of membership interest by South Korea and Indonesia, as well as certain inferences that China could seek to enter at some point, he said.
   “The hard part is, if you’re joining a club, it’s very hard to put in your application and us to change rules,” Hockey said. “That’s sort of where it’s at in multilateral agreements, even when you’ve got a massive economic powerhouse like the United States.”