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Headlines around the world announced U.S. President Donald Trump’s formal withdrawal of the U.S. from the Trans-Pacific Partnership (TPP) in January. In a reversal of the former Obama administration’s position on the multilateral trade deal, President Trump signed an executive order, effectively killing TPP for the 12 countries involved in the negotiations. Or did it?
The answer is, it depends on who you ask.
Australia and New Zealand want to salvage the deal even without the U.S. Australian Prime Treasurer Scott Morrison insists that “[t]here’s still a lot that can be gained,” even without the U.S. involved in TPP, “and we intend to continue to pursue that, where those opportunities persist and where there is potential for other partners to step into this.”
Australian Trade Minister Steve Ciobo encouraged Parliament to ratify the agreement because “ratification of the agreement is the strongest message we can send on the importance of TPP.” While Australian Prime Minister Malcolm Turnbull has acknowledged the U.S. withdrawal from TPP makes it very difficult to move forward with the remaining 11 countries, he insisted that “there is potential for China to join the TPP.”
Japan is reluctant to move ahead with TPP without the U.S., and Japan Prime Minister Shinzo Abe has balked at the suggestion that China could replace the U.S. in the trade deal. Instead, Prime Minister Abe wants to convince the U.S. to reconsider its position on TPP, assuming “President Trump also understands the importance of free and fair trade.”
Japan has ratified TPP and is “encouraging [Australia] to complete [its] ratification process,” explained Turnbull in describing his conversation with Abe, “because everyone would like, in the future, the United States to rethink its position and join the TPP.” Abe has stated that he wants to meet with Trump “to steadfastly seek his understanding of the strategic and economic significance of the TPP agreement.”
The prevailing thought, however, is that TPP in its current form is dead and that the remaining 11 countries must now form new deals.
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For example, Canada’s Foreign Affairs Minister Chrystia Freeland explained that TPP “was so constructed that it can only enter into force with the United States as a ratifying country.”
Recognizing the trade deal will not move forward, Peruvian President Pedro Pablo Kuczynski indicated that he wanted to work with countries that Peru currently does not have trade deals with, including China. He also wants to renegotiate TPP, stating, “[w]e are going to take the best things out of TPP and get the not-so-good stuff out.”
Similarly, both Chile and Mexico vowed to continue talks on other trade deals, and Chile initiated a March summit for TPP leaders to discuss next steps in a post-TPP world.
Some commentators, including CNN’s Fareed Zakaria, who recently appeared on “Tonight” with Don Lemon, suggested surprise that, despite Trump’s campaign pledge to back out of TPP, he did not approach Japan, Australia and the other larger economies in TPP and ask for concessions so he could show Americans and the world that he negotiated a better trade deal while still keeping opportunity for U.S. exports. After all, although TPP has its issues, it did remedy some of the social and economic issues that concerned many. For example, it imposed stricter labor standards and opened borders to countries that traditionally have had both tariff and non-tariff barriers to U.S. exports.
Trump has repeatedly told the story of watching Japanese cars rolling off cargo ships for sale in the U.S. In fact, Trump called Japan “unfair” for making “it impossible to sell cars in Japan” when he withdrew from TPP.
If the Trump administration is leaning on U.S. automakers to produce cars in the U.S. so we do not rely on Japanese cars made in Mexico, couldn’t he have gone to Prime Minister Abe and negotiated a specific concession related to the automotive industry within the trade deal? Instead, the U.S. withdrew. But what if walking away from the table is Trump's way of negotiating a stronger trade deal in the future? President Trump often boasted on the campaign trail that he could have negotiated a better Iran deal than the Obama administration by simply walking away and waiting for the other side to call a few days later. One could argue that is precisely what is happening now that Prime Minister Abe is asking the U.S. to reconsider its position on TPP. One Japanese former trade ministry official stated, “relations with the U.S. are the top priority, so the prime minister’s office will have to make some concession.” If that is the case, perhaps there is a future bilateral trade agreement between Japan and the U.S. that addresses Trump's concerns while simultaneously promoting free trade.
The multilateral agreement may be out of scope for the U.S., but Trump has said he would negotiate bilateral agreements. By walking away from TPP, the U.S. has the ability to negotiate separate deals with each nation, a forum that may be more comfortable for Trump.
On the one hand, each country can ask for specific concessions from the other trading partner, focusing primarily on trade between the two countries. On the other hand, trade between two nations does not happen in a vacuum and it is naive to think other countries do not influence those negotiations even if they are not parties to the agreement.
So what does the U.S.’ withdrawal from TPP really mean? It likely means a bit of uncertainty in the short term, reliance on current free trade agreements in the midterm, and new bilateral trade deals with new rules in the long term. But it still depends on who you ask.
Suzanne Offerman is the director of product management for international trade for Thomson Reuters Tax & Accounting’s information business.