Implications Of The U.S. Withdrawal From The TPP

President-Elect Trump’s threat to withdraw the U.S. from the Trans-Pacific Partnership (TPP) should be taken seriously, despite how mercurial he has already proven to be in failing to follow through on a variety of other campaign promises. Withdrawal from the trade pact is a critical part of the core commitments Trump made to his constituency. Given that he has the Congress in his pocket for the next two years (at least), and that they will be similarly anxious to be seen as delivering on that particular promise, it should be expected that the U.S. will indeed be withdrawn from the pact.

If the pact had not been negotiated in such secrecy, and if the perception on the U.S. street was not that it benefitted big business at the expense of the average working person, perhaps momentum would not be on Trump’s and the Republicans’ side. But the truth is that the way the pact was negotiated and kept in total secrecy left a rightfully sour taste in many peoples’ mouths. That has only exacerbated the economic nationalism, isolationist tendencies, and rise of the right that were already well underway in the U.S. and much of the rest of the world prior to Trump’s rise to power.

Assuming that the U.S. withdrawal occurs in the early part of 2017, what are some of the political and economic implications that may be expected? First and foremost, the U.S. will succeed in shooting itself in the foot by making it more difficult and costly to export its goods to the rest of the world, but also by ceding the ability to have a primary role in shaping the coming 21st century global trade architecture. The knee-jerk reaction Trump is succumbing to and promoting is simply self-defeating in the long term.

Second, while economic nationalism and isolationism ultimately end up hurting the nations that embrace them, it just so happens that what the U.S. does (or doesn’t do) still matters to the rest of the world, so we should expect that if TPP were to die as a result of Trump and the U.S. Congress’ actions, scores of other nations will seek bilateral alternatives or other multilateral alternatives. The world is already far too reliant on bilateral trade agreements and although agreeing on an alternative multilateral structure will surely prove difficult (as all others have), that will presumably not stop other nations from seeking to do so — with or without the U.S.

Third, China stands to gain — a lot — in the process. Just as Beijing was able to portray itself as a bastion of fiscal conservatism during the Great Recession, it is already in the process of portraying itself as the guardian of trade multilateralism and transparency by pushing its existing alternative to the TPP - the Regional Comprehensive Economic Partnership. Along with the Asian Infrastructure Investment Bank (China’s creation) and the BRICS Bank (both headquartered in China), Beijing is already well along the way to creating its own ‘alternative’ trade and investment reality. While the U.S. is busy tying itself up into knots on the global stage politically and economically, China is eating its lunch, and many nations in Asia and around the world are happily drinking the Chinese kool-aid. The U.S. withdrawal from the TPP should work out about as well for the U.S. as the Asia Pivot has, with China likely to reap the rewards for having been prepared and foresightful enough to present alternatives to Asia and the rest of the world — even though it naturally benefits in the process.

Perhaps in response to those who are already warning him of some of the consequences of withdrawing from the TPP, Trump will develop an ambition to create another alternative to the TPP — but in his name and selling it so that the American worker will be “sold” as a primary beneficiary. Even nationalistic American workers presumably wouldn’t oppose a new trade pact negotiated in broad daylight, rather than under cover of darkness, where the potential benefits to be derived from export-oriented trade transactions at the worker level are easily seen.

The same can also be said of the potential benefit of negotiating a new trade pact transparently for all other participating nations. If that were to be the case, the U.S. withdrawal from TPP could turn into a net positive for all nations concerned. Of course, that would be many years and painful negotiations down the road, and Trump would probably need to remain in power for eight years to have a hope of accomplishing that under his watch, even if he were to begin in 2017. Given everything else that is on his plate, and the mood of the U.S. Congress, only an initiative driven by Trump’s ego can make that happen.