Smaller Trade Deals Seen Likely in Wake of TPP’s Downfall
Now that the 12-nation Trans-Pacific Partnership trade pact is basically dead in the water, trade experts said smaller bilateral trade agreements could come down the road in the Trump administration.
The Obama administration conceded Nov. 11 that it will not pursue TPP in the lame-duck sessions of Congress that is under way, giving up on the sweeping trade deal that was seen as a cornerstone of President Obama’s legacy.
Trump railed against TPP during the campaign and vowed to withdraw the U.S. from the trade pact in his first 100 days in office. Republicans, who maintained control of the Senate and House, also voiced opposition to TPP, pointing to a list of outstanding issues that the Obama administration was working to resolve by the time of a lame-duck session this week.
Industry officials said they are still hopeful, though, that once Trump is in office his tone and actions on trade will change, as they have seen with past presidencies.
Trade ministers signed TPP in early February. It includes the U.S., Australia, Japan, Mexico, Canada, Vietnam, Malaysia, Peru, Singapore, Chile, Brunei and New Zealand and aims to remove barriers to trade to encompass nearly 40 percent of the world’s GDP if enacted.
The TPP partner countries have until February 2018 to ratify the trade pact. If they have not all ratified by that time, at least six of the original signatory countries accounting for 85 percent of the combined Gross Domestic Product would have to ratify it in order to enact it. That would mean that both the U.S. and Japan would have to be among the six countries to ratify the deal in order for it to take effect.
Phillip Swagel, a professor of international economic policy at the University of Maryland, said: “TPP is dead for at least the next two years. But I think that was the case already — if [Hillary] Clinton had won, she would have waited two years to move forward, just as Obama waited with the South Korea, Colombia and Panama agreements.”
David Spooner, a partner at Barnes & Thornburg and a former chief textile and apparel negotiator at the U.S. Trade Representative’s Office, said, “TPP in its current form is certainly dead. But there is a high chance there could be bilateral trade agreements with some of the major TPP parties.”
Mickey Kantor, U.S. Trade Representative under President Clinton, said TPP is on “life support” in the aftermath of the election but he stopped short of calling it dead. Kantor said, “I think there are significant numbers of rules-based people in the Republican party who support rules-based trade agreements like the vice president-elect Mike Pence, who might want to persuade him to take another look.”
Some Republican Congressional leaders still support a TPP trade deal but believe outstanding issues need to be resolved.
House Ways and Means Chairman Kevin Brady (R., Tex.) said he will continue to stress to Trump that the Asia-Pacific region is an important consumer market for U.S. exports — one that is expected hold half of the middle class customers by the end of the decade.
“My advice will continue to be to him [Trump] not to withdraw but to renegotiate [TPP],” Brady said Monday on a panel hosted by Politico. “Take the areas that he’s got real challenges with. Make it better. Make it better for America. Then let’s stay on that trading field in that region. I think it is critically important.”
“We want to be there and if we withdraw or abandon that field completely, we lose and China wins in a major way,” Brady added.
For retailers and apparel and footwear brands, the current political environment that has stalled TPP in its current form is a setback but one that some officials think can be overcome and others think cannot.
Julia Hughes, president at the U.S. Fashion Industry Association, said changes would “obviously” have to be made to the deal for Trump’s approval.
“That means there will probably some intense renegotiationg, but I don’t want to say TPP dead,” Hughes said. “It is going to be in a Rip Van Winkle state for a while. As most presidents do when in office, the Trump administration will realize that trade agreements are good for the economy.”
She said the Trump administration and business community will take stock when the February 2018 deadline hits and focus on the talking point about strengthening ties with Asia-Pacific allies.
“That could be the time for the administration to take a fresh look,” Hughes said.
Rick Helfenbein, president and chief executive officer at the American Apparel & Footwear Association, said TPP is “deceased and not coming back.”
“I’ve been telling my members if want to invest in Vietnam, you should do it because it is a good business decision and not wait for government intervention in the form of duty relief because it might not happen,” he said. “One thing Trump said early on, long before he thought he would become president, is he didn’t believe in big trade deals. Categorically, the mega-trade deals are gone and I think gone forever from the U.S. landscape. You will end up with smaller, bilateral deals.”
Helfenbein said it is conceivable the U.S. will try to directly negotiate trade deals with Vietnam or Japan.
“These are likely because they are easier to understand, easier to get your arms around and easier to get through Congress,” he said.
What is the next likely step for TPP partner countries? Many experts said at least seven of the TPP countries will focus more on another regional trade deal that excludes the U.S. known as the Regional Comprehensive Economic Partnership pact.
The proposed 15-nation RCEP, a trade pact that includes China, Japan, India and the 10 member states of the Association of Southeast Asian nations could potentially fill the void left by TPP if it is never enacted.
“I think particularly with China now being more aggressive in promoting [the Regional Comprehensive Economic Partnership trade deal] there is a good chance that Trump as president will realize we can’t shut down trade with Asia,” Spooner said. “He’ll have to follow through on his promise to supposedly negotiate better deals” and TPP could be one that he attempts to renegotiate.
“I suspect other countries will move forward on their own, and then also look to make agreements with China,” Swagel said. “So the situation will be different – worse – for the United States in a couple of years. But even so, other countries will be willing to engage with us when our political system allows it. They still will want a deal with the superpower.”