Thursday, January 26, 2017

Trump Can't Kill The TPP

By Mihir Sharma
The Bloomberg View
January 26, 2017

When President Donald Trump withdrew U.S. support for the Trans-Pacific Partnership on Monday, he made it harder for American companies to compete. In the name of U.S. labor, he compromised the interests of the American worker, for the TPP would’ve forced labor standards onto the trade agenda for the first time in history. He turned his back on America’s allies and handed China a giant strategic victory. What he didn’t do was kill what the TPP stands for.

The TPP has two purposes. First, it recognizes that the barriers to trade now are significantly different from those decades ago. Paperwork, not tariffs, poses the biggest obstacle to the development of trade networks. Complex and contradictory regulatory regimes, sovereign risk, implicit backing to state-owned enterprises -- these are the problems traders face, and they’re what the TPP addressed.

By doing the hard work of beating out an agreement with 11 other countries on such issues, the Obama administration effectively laid the foundation for most future trade deals. Henceforth, negotiations involving any of the TPP countries will look at the concessions they’ve made already and attempt to build on them. Japan won’t be able to keep the question of opening its agriculture sector off the table. Vietnam will have to address the coddling of its state-owned enterprises.

Second, the TPP would’ve ensured that China didn’t set the rules of the road when it comes to international trade. While the Trump administration may not appreciate the importance of this goal, most Asian countries certainly do. The China-led Regional Comprehensive Economic Partnership, for example -- which includes India but not the U.S. – might streamline manufacturing supply chains but won’t force domestic reform and harmonization within its member countries.

That’s set up to benefit China much more than possible competitors. The People’s Republic is already the center of global manufacturing networks; it would like to see trade deals that entrench it in that position even as its domestic costs of producing inexorably increase. This isn’t exactly what Southeast Asian nations, say, want in the long run. They need access to other markets; they need a swifter and more efficient flow of services across borders; and they need a deal that opens up possibilities for newer trading networks instead of cementing the old.

It’s now up to the remaining 11 TPP countries, and those across Asia who aspired to join the pact, to ensure that its principles become the norm. India is a case in point. The country has long been doubtful about the TPP, its skepticism fueled by a desire to protect its pharmaceuticals sector and the tangle of regulations that prevent its manufacturing sector from becoming competitive. Indian policymakers may be tempted to celebrate the apparent death of the TPP and all it represents.

But that would be a mistake. India must ultimately reckon with the basic truth that domestic demand won’t be sufficient to employ the million or so people joining its workforce every month. Indian companies will need to export, too, and TPP-style deals are the only way to make them competitive enough to do so. Older business models, such as the generics-heavy approach of Indian pharmaceuticals, will have to give way to models that emphasize intellectual property rights and innovation. Otherwise productivity simply won’t rise. In other words, the old-fashioned “tariff-first” approach to trade negotiations, which India still prefers despite the fact that it’s proven inadequate, cannot survive.

Yes, a large part of what made the TPP so important was the symbolism surrounding the deal: It was a signal to Asia that the U.S. continued to be willing to play the role of a leader. Under Trump, that willingness has clearly eroded.

But the strategic usefulness of the TPP wasn’t what set it apart. What distinguished the pact was that it truly brought trade negotiations into the 21st century. It sought a delicate balance between the demands of multiple interest groups while simultaneously ensuring that new patterns of trade were given the opportunity to emerge. If trade in Asia isn’t to die, taking a continent’s hopes of growth along with it, then such a balance will have to be a feature of whatever arrangements come next. Trump’s pen can’t stop that.


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