Return of the TPP: Trump realizing trade deal aligns with goals on China

Return of the TPP: Trump realizing trade deal aligns with goals on China
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Last week, President TrumpDonald John TrumpShocking summit with Putin caps off Trump’s turbulent Europe trip GOP lambasts Trump over performance in Helsinki Trump stuns the world at Putin summit MORE asked his trade team to look at rejoining the Trans-Pacific Partnership (TPP), now known as the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP). President Trump pulled out of TPP in January 2017, after sharply criticizing it

By leaving the trade agreement, the U.S. forfeited strategic advantages and economic benefits. It gave up leadership of a group of 11 growing and friendly economies in one of the world’s most dynamic economic regions, where China is asserting its economic prowess.

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The CPTPP agreement includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Those economies account for over 13 percent of global gross domestic product and some 500 million people. The agreement was signed March 8 and will go into effect once six countries ratify it. 

 

The Peterson Institute of International Economics (PIIE) estimated that the CPTPP will produce a global income benefit of $147 billion for its members. However, the PIIE study also found that the economic benefit would be much larger ($492 billion) if the U.S. were a member.

The study estimates that the U.S. will lose $2 billion in exports if it stays outside of the current CPTPP, compared to a gain of $131 billion if the U.S. had remained in the agreement. One example: Beef from CPTPP members Australia and Canada will now enter Japan with a 9-percent tariff, while U.S. beef still faces a 38-percent tariff.

There remains a good deal of skepticism in the U.S. about the CPTPP, especially among organized labor, but others, including Republican senators, argue that it was a strategic error to pull out and to leave the field to China. Asia’s markets are expected to grow immensely in the years ahead.

By opting out of CPTPP, the U.S. is forfeiting the opportunity to help shape the region’s rules on trade, investment, intellectual property, the internet, digital trade and other areas important for U.S. prosperity.

Ironically, the U.S. was crucial in forging the current agreement, which incorporates best practices from other trade agreements, a modern chapter on internet commerce and covers labor, the environment, small and medium enterprises and other areas beyond tariffs.

The CPTPP members set aside 22 provisions from the original draft after the U.S. opted out. These relate largely to protections for intellectual property and investment. The member countries agreed that those issues could be taken up again if the U.S. re-engages. The Japanese and Australians are particularly supportive of the U.S. rejoining.  

CPTTP members say they welcome other countries joining the pact if they are willing to accept its obligations. Potential members include Hong Kong, Taiwan, South Korea, Southeast Asian countries, Colombia and even the U.K. The PIIE study finds that adding countries could give a big boost to the economic gains from the agreement.

The president’s instruction to consider rejoining the CPTTP makes excellent economic and geostrategic sense. The U.S. is in an economic tug of war with China over its economic and trade practices. This could lead to economic blows between these two commercial powerhouses.

The United States needs allies in this situation. Rejoining the TPP would give U.S. companies and farmers better access to new markets as well as aligning the U.S. with a significant group of Asian partners.

It would, however, be a major reversal by the Trump administration to enter negotiations with 11 other countries rather than to pursue its stated preference for bilateral agreements. It is not clear yet that the review requested by President Trump will produce a recommendation to try to join the CPTPP.

The success of a U.S. effort to rejoin will depend on what the U.S. demands in a negotiation to make the deal be “better.” For example, the 11 members of the CPTPP may not want to re-open the treaty to the type of major market changes that the U.S. has suggested in the NAFTA talks.

Nor do we know what the current members of the CPTPP might seek from the U.S. to reopen the agreement that they hope to start implementing soon. Their initial responses have been cautious.

If the U.S. tries to use hardball tactics to negotiate with CPTPP, as it has with NAFTA, with steel and aluminum tariffs, or with China, the member countries may not agree to pursue U.S. membership.

A transparent and vigorous examination of the pros and cons of the U.S. entering the CPTTP would be welcome, however.

It could allow valuable debate about the importance of agreeing to rules and norms with a group of like-minded trading nations and of developing new markets for U.S. goods and services, rather than largely focusing on defense of U.S. markets, as the administration is doing.

Such a discussion could also allow a better airing of ways other than trade, including workforce development investments, to help American workers and communities adjust to the double-barreled assault of global competition and new technologies.

In addition, from a U.S. perspective, it would be easier to convince a group like the CPTPP to accept new U.S. approaches and ideas than to try to win consensus in the World Trade Organization, or to try to convince others through a series of bilateral agreements.

The CPTPP embodies the notion of building prosperity through economic integration among partners who set higher standards. It accepts that trade agreements can be win-win. If the U.S. were to accept such an approach in seeking to enter the CPTTP that would be a boon for America, Asia and the world.

Earl Anthony Wayne is a public policy fellow at the Wilson Center, a former assistant secretary of state for economic and business affairs and a former U.S. ambassador to Mexico.