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Anti-TPP protestors in Malaysia
‘Donald Trump opposed the Trans Pacific Partnership (TPP) free trade agreement among 12 countries promoted by the Obama administration and accounting for 40% of global trade.’ Photograph: Olivia Harris/Reuters
‘Donald Trump opposed the Trans Pacific Partnership (TPP) free trade agreement among 12 countries promoted by the Obama administration and accounting for 40% of global trade.’ Photograph: Olivia Harris/Reuters

Australia and Asia Pacific had high hopes for the TPP. It's not necessarily over

This article is more than 7 years old
Alan Oxley

Donald Trump has made it clear he’s not a fan of the Trans Pacific Partnership free trade agreement. But the rush to declare an end to free trade is premature

Much attention has focused on Donald Trump’s pronouncements about blocking trade.

In the election campaign he signalled out Mexico and China, blaming them for loss of US jobs and warning he would restrict trade with them. He said he would pull down the North American Free Trade Agreement. He also opposed the Trans Pacific Partnership (TPP) free trade agreement among 12 countries promoted by the Obama administration and accounting for 40% of global trade. And he said if necessary the US would withdraw from the World Trade Organisation.

Given the rhetoric used to advance these propositions, it is not surprising they were taken seriously. There is speculation this will cause chaos in global trade. This is unlikely.

Consider the North American Free Trade Agreement (Nafta) between the US, Canada and Mexico. Trump blames it for loss of jobs in US manufacturing. US manufacturers shifted to Mexico to manufacture parts to export to the US, particularly for automobiles. Some opined to a US economic think tank that if Trump imposed tariffs on those imports they would relocate the manufacturing plants to other economies. Shrinkage of manufacturing workforces is a global trend. Automation is the reason.

As it is, unemployment in the US is 5% and the participation rate (of employment) at 72% does not seem much out of step with OECD economies. In the UK, unemployment is 5.4% and Germany 4.9% and participation rates in both are 77%. What generates the traction in the US is that it is high among adult, white males who were formerly the core of US manufacturing.

It is likely Trump will do some sort of deal with Mexico which shows some response to the problem of white male unemployment. In the meantime, it is likely increases in jobs in the US he promises will come from his pronouncements he will rebuild infrastructure. That is sorely needed in the US.

Trump also warned he would limit cheap Chinese imports. He pointed to dumped Chinese steel products. These were considered as priced below how much they cost to make. He will be well informed on this. It is reported the CEO of the largest US steel manufacturer, NUCCOR, will be his special trade representative (trade minister).

Complaints that steel products are being exported below production cost (“dumped”) from China to the US and the EU are commonplace. Expect some sort of bilateral deal between Washington DC and Beijing on this. The US and China have a very sophisticated financial relationship. (Chinese ownership of US bonds is huge and the pair pay close attention to their respective exchange rates.) Everything points to some sort of deal between the two which does not spill over with wider trade ramifications.

The third trade question was put on the table by the Obama administration. This was negotiation of the Trans Pacific Partnership (TPP) trade agreement between the US and 11 other trading partners, including Japan, Korea and Australia.

The Obama administration secured agreement to try to pass the TPP agreement through the US Congress in its final 2016 sessions this month. Trump opposed it. So did Hillary Clinton, who had previously championed it. There are clear signs this was political opportunism on her part. Obama’s ambition was to have the Congress pass the agreement in its closing session this year. Congressional leaders now consider it inappropriate for President Obama to seek congressional approval. Mitch O’Connell, the Republican leader in the Senate has suggested the TPP agreement might be considered by Congress late next year. The arrangements agreed in the Congress to enable consideration of the TPP agreement included a two year timeframe.

Australia and the other Asia Pacific economies had high hopes for that agreement. Its 12 members accounted for 40% of world trade. The agreement took its partners to new levels of regional economic integration. With tariffs on most goods now low, it set out measures to expand economic growth by opening services markets and removing barriers to investment. These measures went further than commitments in the agreements of the WTO.

There has been a lot of rhetoric on trade matters in the US election campaign. There has never been strong public support for trade (as it is called in the US). It should not be forgotten that most members of Congress do not have passports. As the business of governing replaces campaigning we should expect trade to drop out of the headlines in the US.

It has become the fashion to forewarn a resurgence of protectionism. Trump’s unexpected victory will be pointed up as yet another omen of this, as was Brexit to some. All that is common there was that large segments of the population in two countries did not follow the established wisdom. More are doing so in Europe, not least because concerns about migration.

It should not be unsurprising as well that eight years after the global financial crisis, global economic and financial conditions remain uncertain. The rush to declare this is the end of the era of free trade is an outdated reach back to socialist mantra.

Alan Oxley is Principal of ITS Global, a consultancy specialising in public policy in the Asia Pacific region.

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