Trans-Pacific Partnership 2.0 May Be On the Way, With U.S. On the Sidelines
When President Trump announced a couple of days after taking office that the United States was pulling out of the Trans-Pacific Partnership, the trade deal among 12 Pacific Rim countries seemed to be dead. But like Lazarus, it may be springing back to life. Instead of boxing out its trade partners, the United States may find that it is the one on the outside looking in.
Negotiating a TPP 2.0 among the 11 remaining countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam – got underway at a low-profile officials’ meeting in Toronto last week. The upcoming forum on Asia Pacific Economic Cooperation in Hanoi (APEC) May 20-21 may provide a clue as to the effort’s future. No doubt it would be a heavy lift. It is not just a matter of taking the old deal, crossing out “12 countries” and substituting “11”. For one thing, the terms of ratification would have to be changed. TPP was supposed to enter force once it was ratified by at least six nations representing at least 85 percent of the proposed trading bloc’s GDP. Since the U.S. alone would have represented 60 percent of the proposed bloc’s combined GDP, Americans had an effective veto. That would have to be re-written, and that may be no easy task given competing visions of national influence among the 11 remaining countries.
Some countries insist that substantive sections of the agreement need to be re-written. Any trade agreement is a collection of bargains. TPP reflects bargaining that was conducted to accommodate the United States. Countries like Vietnam and Mexico, for example, were reluctant to agree to new standards on environmental and labor protection, but were pulled toward them by the magnetic draw of the U.S. market. Would they feel the same about an agreement that represents only 40 percent of the GDP of its predecessor?
Nonetheless, TPP-minus-one is a real possibility, even if the one left out will be a huge one. Canada – facing threats from the Trump administration over dairy products and softwood lumber – is looking to diversify its trade base. New Zealand has been committed to open markets for years. Most importantly, Japan – concerned about containing China’s influence – has shown renewed interest, after greeting Trump’s decision to pull out as the death-knell for the deal.
Given the size of the U.S. market, it is easy to see why the White House may feel it doesn’t need TPP. But three factors make the trade agreement important to the United States:
First, without a role in TPP 2, Washington would find itself cut out in terms of influence in the world’s fastest-growing region. Trump seems to feel that when he pulls out of an agreement, he is isolating everyone else, much like the perhaps-apocryphal headline in a London newspaper: “Smog over the channel, continent isolated.” The U.S. market is indeed vital to a successful TPP, but it is not indispensable. The pressure that the President faced from U.S. industries, and even his own Cabinet, when he considered cancelling NAFTA demonstrates that the U.S. economy is a series of concentric circles of overlapping economic interests, and the sectors and regions that feel threatened the most are the ones that make their case the loudest.
Second, the United States gained some enormous concessions in TPP negotiations from countries anxious to get access to the huge American market. That included new areas like the digital economy; areas of growing importance, like intellectual property; areas where the United States has a leading edge, like accounting. And it included strengthened labor and environmental standards, areas where U.S. companies already must meet domestic legal requirements while many competitors are free to cut costs. Would countries like Mexico and Vietnam agree to strengthened labor standards in a TPP 2.0, without the inducement of the U.S. market? Canada agreed to compensate other countries, including the United States, for its supply management policies that protect Canadian dairy farmers. Would dairy farmers in Wisconsin and New York he happy about losing that? Inside the tent, the U.S. was a huge presence. Outside, it would suddenly find itself with less clout.
Third, would China still be boxed out? TPP represented the key aspect of President Obama’s pivot to Asia, intended to provide a counterweight to China. Without the U.S. presence, it would provide a much weaker ballast. Japan probably still shares that goal, no doubt one of the reasons it is pursuing another attempt at TPP. But what about Malaysia, Singapore, and Vietnam? Would they not allow their concerns about affronting China to weigh on their desire for access to broader markets – especially when that no longer includes the U.S. market?
A TPP 2.0 without the United States is a real possibility. But it would not offer Americans the advantages of TPP 1.0. On his recent trip to Asia, Vice President Mike Pence called TPP a “thing of the past.” But it may very well be a part of the future – whether or not the United States shares in it.
