What's next after the US withdrawal from the TPP?

The Pacific countries will continue negotiating regional economic arrangements without the US.

The collapse of the TPP may re-energise some other talks involving Southeast Asian and Pacific countries, writes Edwards [Getty Images]The collapse of the TPP may re-energise some other talks involving Southeast Asian and Pacific countries, writes Edwards [Getty Images]

AJ

by John Edwards

John Edwards is a non resident fellow at Australia's Lowy Institute.

Finally agreed a year ago after seven years of negotiations, the Trans Pacific Partnership was widely expected to become the third biggest regional trade agreement in the global economy after NAFTA and the European Union.

Disavowed by United States President Donald Trump in his first week in office, the corpse of the much vaunted TPP is now the most potent and puzzling symbol of the actual meaning of the Trump administration.

Australian Prime Minister Malcolm Turnbull refuses to accept that the TPP is indeed dead, pointing out recently that the US has sometimes changed its mind on trade issues.

Maybe so, but in this case Trump is not seeking a better deal. He does not want a deal at all, and could hardly be plainer in saying so. Nor is Turnbull's proposal that the 11 remaining signatories go ahead without the US at all compelling.

Japan, the largest of the remaining economies in the TPP group, scotched that last week. Without the US, Japan announced, the agreement was "meaningless".

Turnbull has vaguely suggested that China might replace the US as the TPP anchor. But given China's caution on trade agreements that go beyond tariffs on goods, the TPP framework won't suit. China might well be the anchor of a new Pacific trade agreement. It won't be the TPP.

In straight economic terms the world won't notice the absence of the TPP. Even one of its most vigorous proponents, the World Bank, calculated that after 15 years operation it would have added an average about 1 percent to the size of the 12 economies party to the 2016 agreement.

That is not an entirely trivial increase, but it is pretty tiny. Even Australia would expect to its gross domestic product to be 40 percent bigger in 15 years in the ordinary course of things, and Australia is one of the slower-growing of the putative members. Vietnam's GDP might well have doubled, or more, by 2030. An additional 1 percent would not be noticed.

The issue with the TPP

What is really at issue in President Trump's disavowal of the TPP is not the loss of global economic gain. It is the loss of global economic direction.

The TPP is a new generation trade agreement that extends well beyond tariffs on goods to encourage the growth of cross-border trade in services, and the growth of cross-border investment between the participating economies.

It is surely unlikely that within the next four years the US will participate in a regional trade arrangement involving China. Yet, China is far and away the biggest economy in the region.

It would liberalise the movement of professional workers between the economies, create minimum labour and environment standards, greater protections for intellectual property and impose market-based rules on state-owned enterprises.

In many respects the provisions of the TPP and of its Barack Obama administration companion, the Trans Atlantic Trade and Investment Partnership - also to be scrapped by the new administration - codify Washington's idea of global economic rules congenial to kind of economy the US has become: one based on services, with much of corporate value in technology, intellectual property, branding, marketing, and human capital, rather than in physical assets like mines, farms, and factories.

If the Trump administration does not want the TPP, which offers so many advantages to the US, it is surely unlikely to get seriously involved in another regional trade arrangement, one which would most probably be less congenial.

It is surely unlikely that within the next four years the US will participate in a regional trade arrangement involving China. Yet, China is far and away the biggest economy in the region.

What's the next direction?

So, without the TPP, without US engagement in new regional trade deals, what will be the direction for Pacific economic arrangements? It's a pertinent question for the 11 remaining TPP signatories, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

One unlikely direction might be for the US to return to Geneva and try to revive the World Trade Organization Doha round, extending it further into services and investment as well as goods.

I cannot see the US administration reviving Doha, or enjoying any success if it did. It has all of the problems of a trade negotiation, and less chance of a satisfactory outcome.

Another direction, the one Trump is already adopting, is to pursue bilateral trade deals. This allows the US to focus its economic bargaining strength against a single partner such as China or Mexico.

Pursued with sufficient vigour those negotiations might result in "voluntary restraints" in sensitive exports to the US, such as steel, aluminium, cars. It might result in these major economies deciding it is simpler to set up plants in the US, and avoid the fuss.

It offends all the free trade rules, but this is what US administrations have done in past decades against Japan, Korea and Taiwan and not entirely without success. In a small way it might work. Global economic leadership it is not.

Meanwhile, the Pacific will continue negotiating regional economic arrangements without the US. At Davos recently, Chinese President Xi Jinping put up his hand for global economic leadership.

China's initiative in creating the Asian Infrastructure Investment Bank is a case in point. Despite opposition by the US and Japan, its wide membership includes Britain, Germany, Australia and South Korea, all US security allies.

China, the Southeast Asian economies in ASEAN and other regional economies including Australia and New Zealand are fitfully negotiating a Regional Comprehensive Economic Partnership. The collapse of the TPP may re-energise those talks.

There is a much bigger possibility. Once advanced by the US in both the Bill Clinton and George W Bush administrations, China has been toying with the negotiation of a formal preferential trade agreement for the whole of the Pacific region.

It might not be as deep as the TPP in its economic liberalisation, and it might not be quite as suitable to advanced economies such as Australia, but it will most probably be the biggest thing on offer in the region. Unwilling to join a regional trade negotiation, the US may well be left out.

John Edwards is a non resident fellow at Australia's Lowy Institute, and a former board member of Reserve Bank of Australia.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.