The Trans-Pacific Partnership (TPP) ball is back in the court in Asia. The 11 members of the agreement (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) get to decide what happens next with the most advanced trade agreement in the region. Donald Trump has chosen to take the Americans out of the trade ballgame. His video announcement confirmed his intentions to withdraw the United States from the Trans-Pacific Partnership (TPP) agreement when he takes office in January.
Trump Fallout Reaches Peru—The Future Direction of APEC?
The study will say that FTAAP is an excellent idea that APEC should pursue. The original plan—certainly by the Americans—was to say that the study was nice, but since both pathways were currently in progress and moving ahead nicely, there was no need to push forward with FTAAP at this point. After all, TPP was finished but in the domestic ratification stage and RCEP remains under negotiation. Why jump to the next phase while the building blocks are still being built? Now the situation has changed. Trump will not even be present, yet his shadow will loom large because his election has called into question the viability of the TPP pathway to FTAAP. If the TPP is not going to happen, then RCEP becomes the default path to FTAAP.
Trump’s Stunning Victory—Now What for Trade?
Companies hoping to remain competitive—and particularly those working in export markets—will have to work much harder now. Absent trade preferences, firms are at a disadvantage relative to competitors in places like Asia or Europe. The outsourcing that Trump has complained about is likely to accelerate. Firms that want to take advantage of benefits conferred through deals like the Regional Comprehensive Economic Partnership (RCEP) in Asia will need to be located in Asia to provide goods and services to these faster growing, significant markets.
The wider world certainly grasps the consequences of this election. People of all sorts have been glued to their televisions in amazement. For American voters, knocking over the system and electing Donald Trump as President may have felt very good. But the economic and trade consequences will be significant and the fallout felt far beyond Washington DC.
Why Being Pro-Jobs and Anti-Trade Doesn’t Always Work
Start with the aerospace workers. An interviewer went to a plant in California and talked to several employees who had struggled with keeping their jobs. One had already been laid off for an 8 month period and all were worried about their positions being outsourced to Malaysia in the future. All blamed trade for undermining their job opportunities. But this surely gets the situation exactly the wrong way round. Most of the jobs in the aerospace sector are driven by markets outside the United States. The interview did not specify exactly what products these workers produced, but the domestic demand for aerospace will never be as large as global demand. Absent trade, there would be very little demand for whatever rolls off the assembly lines in California. Without trade, there would be very few jobs of any kind in aerospace.
Special Edition: Plan B for Canadian Trade Policy
Having narrowly survived the battle with CETA, Canadian leaders are understandably nervous about prospects for TPP which requires the United States and Japan to ratify the agreement. Canada needs to think seriously about a “Plan B” and take control of its own fate. The first step in doing so is for the country to get serious about trade. An effective, clear-eyed and focused trade strategy is no longer a luxury. Canada currently has 11 full foreign trade agreements. This puts Canadian firms at a competitive disadvantage in Asia.