Only two weeks after Donald Trump was elected the U.S. president, China is rushing to take trade leadership in the Asia Pacific away from Washington. It is also warning that if Trump carries out a campaign threat to punish China for what he considers trade cheating, Beijing will respond. Meanwhile, Trump’s election will give India more trade-policy breathing room.
The reason why Beijing is stepping up its bid to wrest trade leadership from Washington, and why India will be under less pressure to institute trade-related business reform, is that Trump’s election signaled the death of the U.S.-led Trans-Pacific Partnership free-trade pact. The billionaire real-estate mogul campaigned on a promise to scrap the TPP agreement, which he said would hurt
the U.S. economy and cost its workers many jobs.
One of his other campaign promises was to slap a 45 percent tariff on Chinese imports, on grounds that Beijing was a “currency manipulator” and engaged in other unfair trade practices. Trump and a number of American politicians have maintained that China keeps the value of its currency artificially low so its goods are cheaper than other countries’.
U.S. President Barack Obama admitted after Trump’s election that the TPP, which he saw as the way to ensure U.S. trade leadership in Asia, “has no path forward.”
China hurried to fill the leadership vacuum, with President Xi Jinxing urging Asia-Pacific nations over the weekend to join Beijing-led free-trade efforts. His comments came during an address at an Asia-Pacific Economic Cooperation meeting in Lima, Peru. A 16-member alternative trade pact that China is pushing, the Regional Comprehensive Economic Partnership, or RCEP, includes India, but not the United States.
Once that agreement is achieved, Beijing wants an even broader one, the 21-member Free Trade Area of the Asia-Pacific, or FTAAP. Trade “”openness is vital for the prosperity of the Asia-Pacific,” Xi said in asking Asian nations to join the two pacts.
A few days before Xi’s speech, China’s Communist Party newspaper Global Times noted that if President Trump imposes tariffs or other trade punishments on China, “a batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.”
Trump didn’t respond to the newspaper’s comments. The TPP was President George W. Bush’s idea, but Obama embraced it when he took office. If Washington led a quest for a sweeping Asia-Pacific free-trade agreement, Obama reasoned, then it could shape the agreement’s rules to ensure it was a good deal for the United States.
He contended that the Chinese-led RCEP “won’t prevent unfair competition among government-subsidized, state-owned enterprises. It won’t protect a free and open Internet. Nor will it respect intellectual property rights in a way that ensures America’s creators, artists, filmmakers and entrepreneurs get their due. And it certainly won’t enforce high standards for our workers and our environment.”
The 12 countries party to the agreement signed it in February of 2016. In addition to the United States, they included Japan, Canada, Mexico, Australia, New Zealand, Chile, Peru, Malaysia, Vietnam, Singapore, and Brunei. Together, the 12 account for 40 percent of world trade.
Japan championed the agreement in hopes it would lead to a freer trade that would perk up its long-stagnant economy.
The United States made a conscious decision not to ask China, its rival for economic and military dominance in the Asia-Pacific, to participate in the agreement, although it said Beijing might be invited to join later.
India would have had to make painful economic reforms to join.
The agreement’s requirements went well beyond World Trade Organization rules, noted Professor Shailja Singh of the Indian Institute of Foreign Trade.
“The TPP contains detailed obligations on so-called new issues such as labor, investment, environment, e-commerce, competition and government procurement,” he said.
Instead of taking on the daunting reform challenges the TPP posed, India opted to negotiate bilateral trade deals and become a party to the RCEP, whose requirements were less demanding.
If the TPP had survived, at some point Indians might have begun demanding membership — so the country could reap the economic benefits. The TPP’s demise means that, for the moment, India’s trade administrators can avoid the tough negotiations and recriminations that would come from opening protected domestic markets and imposing higher technical and other standards on its businesses.
It will need to address those challenges some day, of course, but in the meantime, it has bought time to get its competitive house in order. The biggest consequence of the TPP’s death for Asia-Pacific countries that had assumed the region’s trade leadership would be bipolar — that is, consisting of the United States and China vying with each other — is that there will be only one regional trade leader from now on.
You can be sure that in the weeks to come the region’s trade administrators will be discussing what that means, and how their countries ought to respond.