Failure of TPP would damage US credibility

By Robert A. Manning Source:Global Times Published: 2016/9/11 19:08:40

Since the failure of the WTO Doha Round to forge a new global trade accord, one of the major uncertainties about global governance has been the future of global trade.

US strategy has been to fill the gap with the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). Failure to approve TPP would not only hit US economic interests, but as Obama has defined it as a pillar of the US "pivot" to Asia, it would also undermine the US security role in Asia as well.

As Singapore Prime Minister Lee Hsien Loong said during a recent visit to the US, "For America's friends and partners, ratifying the TPP is a litmus test of your credibility and seriousness of purpose." Similarly, the US sees TTIP as key to bolstering the transatlantic partnership.

Together, TTIP, more tightly binding the US and EU economies, and TPP binding the US, Japan and 10 other Pacific economies, would account for some 80 percent of global trade. They seek to shape high-end trade rules and standards, covering non-tariff barriers, new and emerging sectors such as biotech, digital commerce and intellectual property rights, government procurement and the environment.

While neither is aimed at China, the absence of the world's No.1 trading power is odd, to say the least. In the case of TPP, which is an adhesive agreement, as a member of APEC, China, as US officials quietly acknowledge, is welcome to join whenever it is ready.

China is discussing EU-China trade liberalization and also a bilateral investment treaty which, if completed, would enable China to benefit from TTIP.

Many Chinese economic and financial scholars and officials I have spoken with indicate that as its market reforms go forward, China would likely consider joining TPP, a discipline that would facilitate reforms as China's accession to the WTO did in regard to Chinese reforms in the late 1990s. 

But all this may be irrelevant. As part of a populist anti-globalization backlash in the US and Europe, trade is being blamed for job losses and the economic malaise facing the middle classes. This is obvious in the US presidential campaign, where both major candidates, Donald Trump and Hillary Clinton, have strongly opposed TPP.

But even discounting the craziness of US election campaigns, long-standing bipartisan support for free trade in the US has eroded. US populist views on trade are in part a reaction to the success of China and manufacturing job losses.

This is an overly simplistic view, one not based on facts and overlooking the net benefits in effect, fighting the last war. Explosive Chinese growth was one factor, but global supply chains, productivity gains and technology innovation such as artificial intelligence and robotics increasingly are the problem, not China.

Indeed, China has already lost its labor advantage: it is the top user of industrial robots. But it is always easier to blame foreigners for US failures.

Whether US trade views will swing back toward free trade in the near to medium term, is uncertain. There is a small chance TPP can pass in the lame duck session of Congress after the election. TTIP is more problematic. Deep US-EU integration means there are few tariff issues, and the key obstacles to TTIP are how to harmonize complex regulatory regimes over EU popular protests.

For the US, at a time of rising tensions in Asia, TPP failure would mark an inflection point, the beginning of an erosion of US credibility and its role as security guarantor to its allies and partners.

A failed TPP would also disadvantage the US in terms of economic competitiveness in Asia, leaving it with no functional vision of global trade strategy.

If the Regional Comprehensive Economic Partnership, a free trade agreement (FTA) between ASEAN and six states with which ASEAN has FTAs, moves forward, and judging from the negotiations, it is unlikely before 2018-19, China will play a more decisive role in shaping trade rules.

But absent TTIP and TPP, which were aimed at setting global rules for 21st century trade issues, the future of global trade liberalization is in doubt. The WTO dispute mechanism is very important to all trading nations, especially China the No.1 trading nation.

In sum, the failure of TTIP and TPP would be a double-barrel setback to US interests. Instead of opening markets in new sectors like biotech, artificial intelligence, robotics, and new materials, the US would be less competitive in both the EU and Asia.

But for US Asia policy, the consequences of no TPP could be catastrophic, undermining not only its economic position but the reliability and durability of its security role, both at a moment of historic transformation in Asia and of the global economy.

The author is a Senior Fellow of the Brent Scowcroft Center for International Security at the Atlantic Council. Follow him on Twitter @RManning4.

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