Commentary: What now? U.S. trade without TPP

Taneli Ruda, head of ONESOURCE Global Trade, has analyzed whether the Trans-Pacific Partnership is likely to move forward without the United States, and what approach the Trump administration will take on trade in general.

   Shortly after taking office, United States President Donald Trump lived up to a major campaign promise by issuing an executive order on Jan. 23 that withdrew the U.S. from the Trans-Pacific Partnership (TPP). What this means for the future of the agreement, which would now include 11 countries, is at this point uncertain, but there is no shortage of opinions, signals and speculation on the subject.
   Since the withdrawal, two related questions have emerged: can the TPP move forward without the U.S., and what approach will the Trump administration take on trade in general?
   First, on the immediate future of the TPP, there are mixed messages. Leaders in Australia and New Zealand have expressed a desire to move forward on the deal without the U.S., with Australian Prime Minister Malcolm Turnbull suggesting that China could step in and make the TPP a principally pan-Asian agreement. Elsewhere, Japanese Prime Minister Shinzo Abe said he hopes to convince Trump to come back to the negotiating table.
   Peru’s president, Pedro Pablo Kuczynski, expressed a desire to renegotiate the TPP or forge something similar anew. “We are going to take the best things out of TPP and get the not-so-good stuff out,” he said in response to the U.S. withdrawal.
   Similarly, both Chile and Mexico have vowed to continue talks on other trade deals, with policymakers in Chile initiating a March summit for leaders of TPP member countries to discuss next steps and clarify what opportunities might remain among them. And Singapore Trade Minister Lim Hng Kiang said the TPP “cannot come into effect in its current form without the U.S.”—the operative phrase being “in its current form.”
   But despite the occasional hedge or trial balloon from leaders of its member countries, the consensus viewpoint is that the TPP will not move forward without U.S. involvement, in part because a pan-Asian trade bloc would not sufficiently lessen TPP members’ reliance on China. Singapore, for example, already has free trade agreements with the U.S. and all remaining TPP member-nations except for Canada and Mexico.
   While bilateral agreements are better than no agreements, this approach is a step backward for trade liberalization as an economic, social, and moral objective.
  
Abe’s statement about luring Trump, who has consistently taken a hard line against the TPP, saying on the campaign trail last June there is “no way to fix the TPP,” back into the fold seems to indicate he has little appetite to move forward with the deal without U.S. involvement.
   Instead, what trade enthusiasts are likely to get in the Trump administration is one committed to forging bilateral free trade agreements instead of multilateral deals. The executive order on the TPP withdrawal states this quite clearly. It instructs trade representatives “to permanently withdraw the United States from TPP negotiations, and to begin pursuing, wherever possible, bilateral trade negotiations” with counter-parties. Japan and Britain seem like the logical places to start.
   While bilateral agreements that liberalize trade are better than no agreements that liberalize trade, this approach is a step backward for trade liberalization as an economic, social, and moral objective. The fact is that multilateral deals are preferable because, among other reasons, they result in fewer conflicting standards and are in some cases easier to reach than bilateral deals.
   The TPP, as ratified, is a useful case study addressing both of these drawbacks. As I have observed in previous columns, the TPP was set to address one of the more technical aspects of trade compliance: the so-called “noodle bowl” effect that occurs when various trade agreements conflict with one another. Instead of having companies continue to follow a patchwork of multiple free trade agreements with different and at times incompatible origination and inclusion rules, the TPP would have provided a harmonized framework across its 12 member countries, streamlining compliance and making it easier to design bills of material and supply chain structures. On the ability of parties to enter into multilateral trade deals when bilateral ones would fail, Jordan Weissmann, an economics writer for Slate, relayed a revealing anecdote.
   “At the start of TPP negotiations, United States negotiators knew that New Zealand would want access to the American dairy market, something that likely wouldn’t sit well with U.S. farmers,” he wrote. “However, because American dairies stood to gain from more access to the Canadian market, it was possible to find something in the deal for everybody.”
   There had been a good amount of organized opposition to the TPP, particularly after it became a large part of last year’s U.S. presidential election. However, the ideological opposition to the TPP didn’t stem from the fact that it was a 12-nation, multilateral agreement, it was because the deal was negotiated in a way that critics claimed lacked sufficient transparency. Whether coincidental or not, neither Trump’s executive order on trade nor his pronouncements on the campaign trail and as president have included a commitment to increase the transparency with which the U.S. negotiates trade agreements.
   Broadly, the U.S. withdrawal from the TPP is likely to cause a bit of uncertainty in the near term, a reliance on current free trade agreements moving forward, and a higher likelihood of new bilateral trade deals (and their inconsistencies) over the long term. But, then again, it all still depends on who you ask.