The World Doesn’t Care About TPP

AP Photo/Rick Rycroft

Kazuyoshi Umemoto, Japan's chief negotiator, left, other member of the Japanese delegation, makes remarks during the opening plenary session of the Trans-Pacific Partnership in Sydney. 

Since the Trump administration’s decision not to ratify the Trans-Pacific Partnership (TPP) so-called free trade agreement, it has become an article of faith of the U.S. foreign policy elite and pundit class that this inaction is causing a decline in American global influence.

In Forbes, John Brinkley wrote, “By withdrawing from the TPP and pursuing an isolationist, “America First” foreign policy, Trump seems intent on throwing that system in the trash. This will give China an opening to run rough-shod over East Asia and Russia to do the same in Europe.”

Writing in The Los Angeles Times of the scrapping of TPP, Jessica Meyers declared, “The move delighted Beijing, which no longer needs to worry about a U.S.-led deal Chinese officials saw as an attempt to undermine its rise. These leaders now have a rare opportunity to tilt the geopolitical landscape and promote an agenda more aligned with China’s goals for global trade.”

In The New York Times, Brookings fellow Richard Bush stated, “The long-term question is whether America pulls back from Asia and makes it easier for China to force countries in the region to make a choice between China and the United States.”

This view—a common cliché among policy elites—is profoundly and dangerously wrong. TPP would not have contained Chinese influence, and was not really designed to.

In considering all this declamation, it’s important to keep in mind that those making this claim are the same sorts of people who insisted that winning the Vietnam War was essential for maintaining America’s global influence. They are also the same crowd that said Saddam Hussein had weapons of mass destruction. Their assertions were not true in the past and neither is their new argument that the end of the TPP means the end of American power.

The TPP was ballyhooed as an economic deal that would cover about 40 percent of the global economy and serve as the vital economic underpinning of the Obama administration’s “pivot to Asia” foreign policy. Yet, it was always surprisingly misleading and insignificant. Advertised as part of a “pivot to Asia,” the deal actually was more directed toward the western hemisphere. Of the twelve countries involved (Canada, U.S., Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore, Malaysia, Vietnam, Japan) only five were in Asia. And of the roughly 750 million citizens of those countries, nearly 500 million are in the Americas. Likewise, the 40 percent figure was a purposeful misrepresentation. Take away the United States, and the proposed deal only covered about 15 percent of global GDP.

Nor was the deal going to have meaningful economic impact. There was much talk of the thousands of items on which tariffs would be reduced, and this was used to create a storyline according to which American exports would surge and hundreds of thousands of new American jobs would be created. However, no mention was made of the fact that tariffs on most items were already quite low, so that even a large percent reduction wouldn’t have a lot of real economic meaning. Cutting a tariff of 5 percent in half only gives a benefit of 2.5 percent after all. The telltale signal for the real insignificance of the deal was the fact that even the strongest supporters of the agreement couldn’t get their econometric models to predict more than tiny gains in U.S. GDP and jobs even ten years after the anticipated ratification. The biggest gainer would have been Vietnam, and that, of course, would have resulted from the expected surge of Vietnamese exports to the U.S. market, not from any surge of U.S. exports or creation of U.S. jobs. Indeed, the United States already had free trade agreements with Canada, Mexico, Peru, Chile, Australia, and Singapore. So, only Brunei (population 423,000), New Zealand, Malaysia, Vietnam, and Japan were really being added to the system, and Japanese tariffs were already very low or even zero on all but a few products. In short, there was never much there, there, economically speaking.

But, of course, the deal was never really about trade and jobs. In a White House preliminary planning meeting in the fall of 2009 when the TPP idea was being developed, I was told that the main objective was to reassure friends and allies in the Asia-Pacific region of America’s continuing commitment to their defense and to maintaining its leadership role (read hegemony) in the area.

There were two problems with this objective. The first was that it was aimed at solving a non-problem. The second was that regardless of the true objective, because the negotiation was a trade negotiation, the deal would have to be justified to Congress on the basis of how much it improved the U.S. economy.

There was really no reasonable need for Washington to reassure anyone in Asia of America’s commitment to the region. Singapore and some other Southeast Asian leaders had begun to raise the issue of the U.S. commitment in the wake of the failure of the president or vice president to be able to find the time to do the long trip to attend a couple of high level meetings in the region. This gave rise to the story line that America was losing interest and beginning to go away.

Now, of course, if you are Singapore or any other small country on the periphery of Asia, you want to do business with China, but you don’t want to suffer the slow strangulation that Hong Kong is now experiencing. So you badly want America to balance against China. Singaporean leaders sometimes speak of the “sweet spot” that lies between a perfect balance of power between China and the United States. In this sweet spot, a country like Singapore can become and stay rich while also maintaining a high degree of political independence. So the concern to keep America close, to be sensitive to the absence of U.S. leaders from a summit meeting, and even to suggest that America had somehow abandoned the region is, to some extent, understandable. But it was fake news and fake polemics. The U.S. Seventh Fleet, after all, remained home ported in Yokusuka, Japan, as it had been for the past seventy years. The United States continued to maintain 30,000 troops in South Korea, and another 50,000 or so in Japan, Guam, and elsewhere in the region. It continued to use Singapore as a supply and repair base. If America had left or was in the process of leaving Asia, why were all these forces still there? Why was the U.S. Navy carrying out so called “freedom of navigation” patrols in the South China Sea? In fact, America had never left and was not in the process of leaving.

The United States also had accumulated and was continuing to accumulate huge trade deficits with most of Asia. Indeed, all the economic miracles of Japan, South Korea, Taiwan, Singapore, Malaysia, and China had been and continued to be significantly based on exports to the American market. So much so, that many American companies and workers complained bitterly of unfair, mercantilist trade policies in Asia. Thus, it was inevitable, that any trade deal with the Asia-Pacific region would have to be judged by the U.S. Congress largely on the basis of whether or not it would reduce the U.S. trade deficits and create significant economic growth and jobs for the U.S. economy.

The ability of any deal to do this was undercut by the fact that the negotiations did not cover such matters as currency manipulation and investment subsidies despite the fact that these matters were far more important determinants of trade balances, competitiveness, and the offshoring or re-shoring of jobs than tariffs and other trade issues included in the TPP discussions.

As the negotiations progressed, and it became increasingly clear that the proposed TPP deal was not going to yield significant economic gains for the United States, the White House and the foreign policy elite began to speak of the importance of stopping China’s economic juggernaut. It was claimed by President Obama and other top U.S. leaders and economists that if the TPP were not ratified, China would write the rules of trade for the future and that the countries of Asia would do free trade deals with China and increasingly fall under its influence.

But this was not a credible argument on two counts. First, all of the Asia-Pacific countries engaged in the TPP talks, were also at the same time engaged in talks with China for establishment of a Regional Comprehensive Economic Partnership (RCEP) of which the United States would not be a part. None of these countries was suggesting that they would not sign the RCEP with China if thy concluded the TPP with the United States. Thus, it was already clear that the TPP would not stop conclusion of an RCEP.

More importantly, it wouldn’t halt the rise of Chinese influence because China’s influence didn’t stem from trade deals. China had become the leading supplier to the U.S. market and thus the biggest buyer from other Asian countries of parts and components destined for assembly into the great mass of products to be exported to America and the rest of the world. China had also become a huge lender, and investor. It was accruing great influence in Europe, Latin America, Africa, Asia, and the Middle East not by dint of free trade agreements, but by dint of investment, especially the investment connected to its One Belt One Road initiative and to its newly formed Asia Infrastructure Investment Bank. China was becoming a greater and greater power because it was competitive and had an enormous hoard of capital that it was investing and lending around the world.

In contrast, America’s role in the global economy had become that of the world’s major consumer and borrower. It could no longer play the role of lender and investor it had played immediately after World War II in rebuilding Europe and Asia.

Neither TPP nor any other trade deal could maintain or extend U.S. influence in Asia. Only by becoming competitive, by becoming again (as it used to be), a major capital generator, investor, and lender will America be able to maintain its influence in Asia and the rest of the world.

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