The would-be largest free trade deal in the history killed by a hasty and politically symbolic executive order is now coming back to haunt the US.
The Trans-Pacific Partnership, which would have covered nearly half of the global economy, is bigger than NAFTA and EU combined. Fueling by ill-advised economic judgments and the need for symbolic political move, President Trump declared TPP as a “rape of our country” and withdrew the US from the trade pact just days after his inauguration without much consideration of how it would come back to bite him years after.
Bringing America out of TPP is a pillar of his protectionist “America First” policy because, according to Trump, the amount of jobs, wealth, and income that “the United States have given away” will “get drastically worse.” His sentiment is galvanized by the now heavily criticized Tufts University paper, which claimed the trade deal would cut half a million American jobs by the next decade. The problem with Trump’s economic advisers and Tufts researchers’ demand-driven model is its failure to include the positive supply-side effects as a result of trade liberalization and its ignorance of the labor and capital market’s responsiveness to structural change and emerging industries. A more widely proclaimed model by the USITC, which was charged by Congress to evaluate the effects of TPP in the US economy, shows that by not joining TPP, America has occurred an opportunity cost of 128,000 full-time jobs and 0.15% growth in GDP by 2032.
To a greater extent, instead of “allowing foreign countries to continue putting barriers in front of our exports,” TPP would have eliminated around 11,000 tariffs on American goods, which according to PIIE’s Petri-Plummer model, translates to a rise of US exports by 9.1% ($357 billion annually). In fact, contrary to Trump’s claim that TPP would “make it easier for our trading competitors to ship cheap subsidized goods into US markets,” Chapter 17 of the trade deal comprehensively limited the capacity of foreign SOEs in subsidizing products and undercutting American firms with cheap products. Indeed, a USDA report shows after the 11 remaining countries reached a fundamentally similar CP-TPP deal, the US trade surplus fell to the smallest for a decade due to reduced exports to Asia, especially in agricultural goods. With the ongoing devastating tit-for-tat trade war with China, American producers are now facing additional competition from members of CP-TPP.
Geopolitically speaking, one of the main objectives of TPP was to contain Beijing’s increasing use of economic tools to advance its hegemonic agenda in the Asia-Pacific region. With US withdrawing from TPP – once a symbol of US geoeconomic commitment to the region – China is now free to introduce its Regional Comprehensive Economic Partnership (RCEP), basically a TPP alternative with China in place of the US, as well as reinforce its manipulative geopolitical Belt Road Initiative. Not only would it hurt the US economy and political influence, TPP collapse destroyed US credibility in the region. Back in the first TPP negotiations six years ago, the US acted as the insurer/big brother, and other countries’ jobs were to take their own domestic measures to meet the many conditions imposed by the US. Yet eleven Asian-Pacific leaders found their collective efforts perished by American increasingly unstable politics. Trump’s move is a sudden divergence from the traditional Republican favorable stance on plurilateral free trade. Even Trump’s opponent Hillary Clinton, who once regarded TPP as the “gold standard” in trade agreements, sent mixed signals about her stance on the issue amidst the 2016 election.
The would-be largest free trade deal in the history killed by a hasty and politically symbolic executive order is now coming back to haunt the US, both economically and geopolitically. Earlier this year, the Trump administration had to return to multilateral trade deal with the Asia Reassurance Initiative Act (ARIA) and even left the door open for a TPP rejoin, marking a shift in his economic agenda. It seemed that President Trump and his administration had realized how imprudent their move was and are now trying to revert the consequences.
Too little, too late.