The following article originally appeared in NDTV on January 24, 2017.
In one of his first acts upon assuming office, Donald
Trump signed a presidential memorandum confirming the U.S. withdrawal from the
Trans-Pacific Partnership (TPP). This move did not come as a surprise. As a
presidential candidate, Trump had vociferously campaigned against what he
described as bad or unfair trade agreements that the United States had signed
onto, claiming that they had led to the loss of American jobs. Among his
targets of criticism were the North American Free Trade Agreement (NAFTA) of
1994 and the United States accepting China into the World Trade Organisation in
2001. But Trump had reserved particular opprobrium for TPP, which was
successfully agreed only last February and was awaiting ratification.
TPP is a weighty and complex agreement negotiated
painstakingly by 12 countries: the United States, Canada, Mexico, Peru, and
Chile in the Americas, and Japan, Australia, Vietnam, Malaysia, Singapore,
Brunei, and New Zealand in the Asia-Pacific. Together, they comprise almost 40
percent of the world's gross domestic product. The rationale for many
negotiating members was to re-engage the United States as a trading partner and
- by collectively raising standards - balance what were sometimes one-sided
trade relationships with China. A TPP minus America, even if that were possible
(ratification by the United States was necessary for its entry into force),
makes it far less attractive for most members.
There are several common misconceptions about TPP. One is
that it is simply a trade agreement, when it is actually much more than that.
Not only does TPP slash tariffs, it contains anti-corruption measures,
intellectual property obligations, human rights and child labour conditions,
and environmental commitments. As a result, neither India nor China would have
been ready to sign on. Comparisons that are often drawn in India with the
proposed Regional Comprehensive Economic Partnership (RCEP) - which includes
China and India, but excludes the United States - are not entirely apt.
Countries that are party to both negotiations - Japan, Australia, Malaysia,
Singapore, Brunei, Vietnam, and New Zealand - do not see one as a replacement
for the other.
A second misconception is that TPP is directed against
China and India. This is only partly true. Officials from TPP countries would
often reiterate that China and India were hypothetically welcome to join TPP at
a later stage, as long as they met its conditions, knowing full well that this
could not happen in the short-term, if ever. China's entry would offset many of
its comparative advantages, while India's would probably have required (among
other things) a much higher stage of development. While TPP is anti-China only
in that it made the United States and Japan much more competitive with fellow
members, it was anti-India only in that it reflected a frustration with New
Delhi's obduracy on trade negotiations at the WTO. While many in New Delhi
portrayed TPP as a punitive measure, India's exclusion was, at most, collateral
damage.
That said, both China and India would have been
disadvantaged by TPP's entry into force, although not significantly. According
to projections made in a working paper by the Petersen Institute for
International Economics, the impact of TPP for both China ($9-20 billion) and
India ($2-6 billion) would have been about 0.1% of GDP by 2030. South Korea and
Thailand, by contrast, would have been much more significantly affected, by as
much as 0.4% and 0.8% of GDP, respectively.
A third misconception, and one that Trump exploited, is
that TPP would lead to a loss of U.S. jobs. The rationale Trump has given for
withdrawing from TPP is that it disadvantaged American industry, workers, and
wages, and that he believes in dealing "directly with individual countries
on a one-on-one (bilateral) basis in negotiating future trade deals."
This is not entirely convincing. American industry has
disagreed with Trump's assessment, calling TPP
"America's best chance to ensure the United States isn't stuck on
the outside - looking in - as Asia-Pacific nations pursue new trade accords
among themselves." Moreover, according to the Petersen Institute study,
TPP would have led to only a 0.1% increase in U.S. labour market churn and
added 9% to U.S. exports by 2030. But rather than try to sell the economic
benefits in a less-than-conducive American political environment, the
administration of Barack Obama tried to project it as a national security
imperative, with U.S. Secretary of
Defense Ashton Carter saying that "passing TPP is as important to me as
another aircraft carrier." Trump's advisors argued, convincingly, that TPP
did nothing to curb China's assertiveness in the Asia-Pacific.
It is hard to see who exactly benefits from the United
States' withdrawal from TPP. Certainly, U.S. industry and other TPP members
will be disappointed. Indeed, this could be seen as a massive self-goal for the
United States. Trump's decision has already been criticized by some American
political leaders, including fellow members of the Republican Party. Trump will
gain credibility with some of his base by actually fulfilling one of his more
contentious campaign promises, but that base is weak to begin with, and unless
there are tangible gains in manufacturing jobs (due to other factors), the
electoral impact is likely to be negligible.
Nor will China or India derive significant benefits from
the demise of TPP, other than a short-term respite. The urgency to complete
RCEP will now diminish, and it is possible that greater complacency will set in
regarding the need to rethink trade in a more protectionist global environment.
TPP - while no boon for India - offered the best hope for a more openly
competitive international trade order from which India, with its competitive
wages and underutilized potential, still has possibly the most to gain. This
sentiment was echoed by Prime Minister Narendra Modi in New Delhi only last
week. "Walls within nations, a sentiment against trade and migration, and
rising parochial and protectionist attitudes across the globe are...in stark
evidence," he said. "The result: globalization gains are at risk and
economic gains are no longer easy to come by." All in all, Trump's
withdrawal from TPP will likely be remembered as a significant step in the
slide towards a more protectionist world.