US Outmaneuvered on Asia Trade – so far

US President Donald Trump’s gamble to wring what he called a better trade deal from the Asia-Pacific economies by voiding the Trans-Pacific Partnership appears to be going awry, with the leading nations proceeding with the pact without the United States and with China capitalizing on US recalcitrance to seek its own Regional Comprehensive Economic Partnership with the ASEAN nations.

In the meantime, although it is early days, so far the president’s tariffs on China are having little effect. Over the first eight months of 2018, China’s exports to the United States have continued to climb, according to an analysis by the Washington-based Center for Economic Policy Research, reaching US$344.7 billion, a year-on-year rise of US$25.4 billion, as Beijing seeks to export as much as it can before 25 percent tariffs on selected Chinese imports start to bite next year.

That is not going to last. Trump, insisting that China’s success is built on theft of technology as well as currency manipulation and a host of other criminal behavior, is being relentless in attempting to bring Beijing to its knees. The Chinese themselves are growing deeply concerned about the threat to their economy.

Trump promised to nullify the TPP, as the pact was known, while campaigning for office. Once he had become president, he killed it, also seeking to drive a stake through the North American Free Trade Act as well as a bilateral trade agreement with South Korea, saying he intended to reshape international trade in America’s favor. Critics contended he had no idea what was in any of the pacts.

But the remaining members of the TPP, led by Japan’s Prime Minister Shinzo Abe and Australian leaders, have moved ahead with the agreement, redesigning it to encompass the interests of the remaining 11 nations -- Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, while leaving the US room to join later, perhaps when Trump either realizes the folly of voiding it or another US administration comes into office.

Australia’s Senate appears on the edge of ratifying the new Comprehensive and Progressive Trans Pacific Partnership (CPTPP) agreement, as the successor document is known, with the administration having overcome trade union objections to deliver Labor support. With Australia now on board, it appears likely that the other members will ratify the agreement by the end of the year. Entry into force requires the signatures of six of the participants.

The new agreement, which encompasses 13 percent of world trade instead of the 30 percent promised by the TPP, modernizes trade liberalization, widening the horizon to encompass services and investment markets as well as providing labor and copyright protection. Although details haven’t been made public, it also seeks deregulation. The agreement covers 30 topics ranging from temporary services to competition policy, telecommunications and other issues.

“The CPTPP agreement will be the tool that fosters trade liberalization in Asia Pacific,” according to Alan Oxley, the editor of Trade & Prosperity, a publication covering Australian trade. “This contrasts with President Trump's intention to reshape global trade according to his precepts. The new free trade agreement with Canada and Mexico shows he is keen to redirect trade, but not liberalize it. In keeping with that approach, he is also obstructing how the World Trade Organization runs. He has vetoed nominations to the body's bench of dispute adjudicators. As it is, the WTO is increasingly weighed down by the majority of developing country members that have little interest in opening their economies. Accordingly, reform of the WTO has been stymied for nearly two decades.”

As Oxley points out, China was handicapped at the time by its inability to liberalize services or investment, the drivers of free market growth. Since that time, China has begun to liberalize its banking services and has issued a timeline to liberalize more of its economy.

“For so long as Donald Trump remains president, the US will remain side-tracked on international trade issues because of his ignorance about the economics of liberal trade,” Oxley wrote in his most recent news letter. “He has at least brought to the fore the need for reform of the WTO. Correction of that will have to await the end of his term. His illiberal inclinations would likely produce the wrong result. As long as President Trump keeps the WTO stymied and shows no interest in reshaping it into a more modern agreement geared to address emerging international trade issues, the CPTPP agreement will serve as the new reference point for that purpose.”