Fredrik Erixon

If Trump abandons the Trans-Pacific Partnership, he plays into China’s hands

If Trump abandons the Trans-Pacific Partnership, he plays into China's hands
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Donald Trump is not wasting any time on trade. Or is he? In his video message about what he'll do on day one, he said he'd abandon Barack Obama's plan to broker a 12-country free-trade agreement for the Pacific region, the so-called Trans-Pacific Partnership (or TPP). But that’s the thing with the Donald – it’s impossible to say if he’s serious or just collecting material for a new chapter in The Art of the Deal. Does he really want to pull out of the TPP? Or is his threat just part of a negotiation? 

Killing the TPP would be a waste – but for other reasons than the economy. It certainly wouldn’t 'bring back American jobs'. In the campaign, Trump repeated a lot of invented statistics from left-wing groups about how the TPP would destroy jobs and growth. More credible estimates point to a different reality. TPP would mean more demand for American goods to the tune of $350-billion. Perhaps not much in an economy with $18,000 billion of GDP. The deal wouldn’t affect more than 54,000 jobs – and that’s a mere 0.1pc of the annual churn rate (destruction and creation of jobs) on the American labour market. Some jobs would go away, but new ones would be created, although it's hard at this point to say what the net change would be. Oh, and it would take 15 years of a fully implemented TPP for them to evolve.

The real story about the Trans-Pacific Partnership isn’t about the grand economic gains. The Donald spoke about doing bilateral deals instead but most of the TPP members already have them. The only real addition to the US list of achieved trade agreements would be Japan. TPP dealt with a couple of new areas, especially so-called non-tariff barriers, but even the most ardent defender of the TPP would have difficulties arguing that they are economically significant.

Just like its cousin, the US-EU Transatlantic Trade and Investment Partnership (TTIP), the point with the TPP was to shake up global trade policy and push unwilling liberalisers like China and Brazil to support global trade liberalisation. Locking them out of initiatives like the TPP and TTIP would add a necessary ingredient for every successful trade negotiation – fear of losing trade gains.

There hasn’t been a global trade deal since 1994 (when the so-called Uruguay Round closed successfully) and efforts to broker one in the noughties stumbled on resistance from large emerging economies. Bilateral deals don’t add much to the economy – they shuffle around trade between countries rather than create new trade – and to get a much-needed shot in the arm of global trade, there has to be a bigger deal involving very many countries and real liberalisation.

And it was about more than trade. The Pacific Partnership was part of Hawaii-born Obama's 'pivot to Asia' and a strategy to keep allies in Asia safe - despite the growing economic dominance of China in the region. And these allies would be the biggest casualties if the partnership collapses. Japan’s Premier, Shinzo Abe, has already said that the Pacific Partnership 'has no meaning' if America’s is out.

So this brings us back to a scenario: that after his huffing and puffing, Trump does actually sign - after some renegotiation. After all, walking away from America's allies in Asia wouldn’t go down well with Congressional Republicans. It would generally be seen as a concession to China.

There’s no mileage for an 'America First' policy that lets China set the terms of trade and market policies in a region that represents so much of the new money added to the world economy.  Trump might sound like a classical mercantilist - an advocate of the kind of protectionism that favours privileged American tycoons rather than traders. But if he wants to 'make America great again' he won't do it by abandoning markets that grow, and ceasing to encourage other Asian countries to open themselves up for more trade and competition.