From PM Lee’s speech: Thus, short of universal trade agreements, we should at least strive for regional or pluri-lateral arrangements. This may be a second best solution, but it is a practical way to incrementally build support for lower trade barriers and higher standards, which can then be adopted by other countries. This was the rationale behind the Trans-Pacific Partnership (TPP). The US originally came on board the TPP because it saw the strategic benefits, although it ultimately withdrew. Fortunately, the remaining 11 members were able to preserve nearly all that had been negotiated, and so the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is now in force. I am glad that more countries have expressed interest to join the CPTPP, including South Korea, Thailand and the UK. China is also watching the CPTPP carefully. They are not ready to join now, but I hope that they will seriously consider doing so sometime in the future. Similarly, I hope one day it will become politically possible for a US administration to rethink the US’ position, and recognise that it stands to gain, economically and strategically, from becoming a member of the partnership that it played such a leading role in designing. Meanwhile, countries in the Asia Pacific are working on the Regional Comprehensive Economic Partnership (RCEP). The RCEP has a different footprint from the CPTPP. It covers all the key countries on the western side of the Pacific, including Northeast Asia and Southeast Asia, and also importantly India, Australia and New Zealand. This inclusive configuration minimises the risk of the RCEP being misperceived as a bloc that excludes the US and its friends. With such a wide range of participants, RCEP standards are naturally less ambitious than the CPTPP’s, and the deal is also much harder to negotiate. Nonetheless, I hope the participants can take the final step to complete the RCEP by this year, or if not, as soon as the domestic politics of the key players allow.
There is no justification that allows a government to raise tariff levels based on immigration levels. To take such a step means that the United States has decided that it will no longer bound by international trade rules. The early commentary on the Mexico decision has been nearly entirely focused on which companies in which sectors will be most at risk from an increase in tariffs by 5% on June 10, with additional increases monthly afterwards until every inbound product faces 25% tariffs by October 1. Such a damage assessment is important for firms that suddenly awoke to find themselves in the front lines of a new trade conflict that they did not anticipate. But it misses the larger point—everyone is affected by this decision. It is not just companies that ship goods from Mexico to the United States that should be paying attention. If the US proceeds down this path, it is the end of the global trade regime that has given stability and lowered risks for an increasingly larger share of companies and consumers since the 1940s.
American trade policy has been like the proverbial frog in a pot, slowly simmering under increasing heat. At a certain point, the frog will not be able to survive, even if it were suddenly rescued. The US, it appears, has reached this juncture. Were any country other than the United States to have taken this set of steps in a week, Washington would have been aghast. Instead, it was largely shrugged off as “just another week in DC.” The fact that the United States could take such actions as escalating tariffs to 25% on potentially $500 billion in goods from China, possibly seal the fate of one of the most important telecommunications firms globally, make national security arguments about the threat level emanating from cars arriving from US allies, and continue to watch the multilateral trade system crumble and then argue that it is “just another week” is especially telling.
The latest Trump tariff threat, of course, is designed to facilitate conclusion of the trade negotiations. Talks are scheduled for Washington DC on Thursday. It is certainly possible that the impeding escalation of tariffs will concentrate minds once more, leading to a very speedy conclusion of talks. Or not. Either way, the coming few days promise more drama on the US-China front than trade watchers have seen in months-- a major escalation of the trade war will happen on Friday or a truce. A second notable set of events takes place early next week that will also help shape global trade for the future. Dueling meetings are scheduled for Geneva and New Delhi for May 13-15. The former is the setting for the first round of talks of what is called the “plurilateral” on e-commerce in the World Trade Organization (WTO). Not all WTO member countries have agreed to join negotiations on the topic, so only a subset of members (74 so far) will sit down to start.
One of the challenges that many commentators have had in describing the impact of CPTPP, however, is that most have focused attention on only one or two elements of the deal. Seen in isolation, chapters of the agreement do not always look radically different than what has gone before in various settings. This is rather like the parable of the group of blind individuals that try to describe an elephant based on touching just one portion of the animal. The person that grasps the tusk has a different idea of the beast than the one who touched the tail or the ears. The complete CPTPP agreement is like the elephant—30 chapters comprising nearly 600 pages of dense legal text in tiny font accompanied by thousands of pages of individual country schedules for goods, services, investment, government procurement, business mobility and more, plus dozens of bilateral letters. Sorting out what it all means clearly and succinctly is probably impossible. Instead, individuals default to describing certain elements of the agreement or trying to measure portions of the deal that are most easily quantified. This fails to properly capture the totality of the agreement. It can lead to description of the CPTPP that suggests it is less ambitious than it actually is or will deliver fewer economic benefits to companies and consumers.