The end of Pacific trade, be careful of what you wish for
President Trump has signed an executive order for the US to withdraw from the Trans Pacific Partnership – and in this one act, he secures the support of Bernie Sanders, the man who ran Hillary Clinton close for the nomination of the Democrat party during the US election. But was TPP really the evil its critics say, and what price will we pay?The whole point about international trade is that it allows us to specialise. It means countries can focus on producing the goods and services in which they have a comparative advantage. In theory, it means job losses in the area where the country does not have a comparative advantage, and job gains in areas where it does. It should promote greater global GDP and lower prices.
There are a few snags. For one thing, there is a feeling that the beneficiaries of free trade have been the elites, leading to countries such as the US specialising in areas which are less labour intensive.
It is also suggested that some trade deals, such as TPP, gave multinational companies too much power – this also forms part of the anti-elite argument.
The fact that President Trump has signed this anti-TPP executive order does not mean the end of the deal. For one thing, Congress has to agree to its cancellation. For another thing, the other members of TPP can carry on.
It won’t make a huge difference, although the TPP agreement was signed in February 2016, it has not been kicked off yet. But it could have made a difference eventually.
TPP signatories are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. Between them, these countries account for 40 per cent of global GDP.
Note the omission of one rather large economy that borders the Pacific: China. Indonesia, is not part of TPP, either.
Indonesia, one of the most promising of the emerging markets, is not part of TPP, either.
But now there is talk of TPP going ahead without the US, the 12 members becoming 11, (so called, 12 minus one) but maybe growing from there.
The Australian trade minister Steve Ciobo was quoted on Australian TV saying; “I've had conversations with Canada, with Mexico, with Japan, with New Zealand, with Singapore, Malaysia. . . I know that there's been conversations that have been had with Chile and with Peru. So, there's quite a number of countries that have an interest in looking to see if we can make a TPP 12 minus one work."
Just as significantly he said: “Certainly I know that Indonesia has expressed a possible interest and there would be scope for China if we were able to reformulate it to be a TPP 12 minus one for countries like Indonesia or China or indeed other countries to consider joining and to join in order to get the benefits that flow as a consequence."
How might this one pan out?
Let’s say TPP goes ahead without the US, and China and Indonesia sign-up. It is not hard to imagine a Pacific region in ten years' time that has become the most powerful trading block in the world, one in which the US has no influence.
Be careful of what you wish for. Many wished for an end to US involvement within TPP. That wish may be granted, but like the wishes granted by the genie, it could work against the lamp rubbing wisher.