Pacific nations leave the US in the rearview mirror on trade

The contrast could not be greater: the president of the United States signs an order to impose new tariffs on steel and aluminum, which threatens partners and allies, on the same day that the 11 remaining partners of the Trans-Pacific Partnership (TPP) sign an agreement to expand trade and establish improved rules governing trade.

The United States administration is focused on defending its domestic market against perceived attacks and using what many criticize as counterproductive and ultimately harmful tactics. Its former TPP partners are focused on deepening trade cooperation and boosting mutual prosperity.

{mosads}The U.S. is asking partners to negotiate their way out of new steel and aluminum tariffs, while the TPP-11 are inviting others, including the U.S., to join their new high-standards agreement, which includes best practices originally suggested by the United States.

Boosting trade between the Americas and the Asia-Pacific region 

The new TPP-11 agreement, or Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) as it is officially named, includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Its economic impact is reduced since President Trump decided to pull out early in 2017. Yet, the CPTPP still includes markets of about 500 million people, which account for about 13 percent of global gross domestic product. The arrangement is predicted to produce positive economic results.

An October study by the Peterson Institute of International Economics (PIIE) estimates that the TPP-11 will produce a global income benefit of $147 billion for its members (as compared to a $490 billion boost if the U.S. were a member).

PIIE estimates that the U.S. will lose $2 billion from forgone trade opportunities (as compared to a $131 billion gain if the U.S. were still in the TPP). 

A June study by Canada West Foundation estimates that exports among the 11 countries will grow by 2.43 percent on average, and that there will be a slight increase in exports to non-member countries, because of more investment in the CPTPP countries.  

Canada West found that the real GDP of the 11 countries would rise modestly. While some members will benefit more than others, and different sectors in individual countries will be affected differently, on balance all 11 governments concluded that they have more to gain than lose from the agreement. The accord will go into effect after six of the countries have ratified it. 

Demonstrating leadership without the U.S. and vis-à-vis China 

While many thought the TPP would flounder without the U.S. as a member, the countries rallied together to demonstrate that multilateral agreements could still bear fruit. Japan was key in leading this effort, supported by Australia.

With the U.S. expressing its preference for bilateral agreements and questioning the multilateral trading system, the TPP-11 agreement is a concrete signal that rules-based trade can move ahead among a group of sovereign states.

After the U.S. pulled out of the TPP, many expressed concern that China would dominate the region with its own visions of trade and commercial agreements. The CPTPP accord thus fills an important political and geographic space with a market-oriented, high-standards and rules-based agreement.

The agreement itself incorporates many best practices from previous free trade agreements and the most modern and comprehensive chapter on internet commerce and protections that exists. It also covers labor, the environment, small and medium enterprises and other areas that take it well beyond tariffs.

The U.S. championed many of the strongest provisions in the agreement when it was participating in the negotiations. While the U.S. will not benefit from them directly or from the TPP’s tariff cuts, it is still very positive that these stronger rules and practices will be implemented among the 11 member states, rather than weaker norms pursued by China. 

Remaining open to others including the U.S.

The CPTPP set aside 20 odd provisions from the original draft from the current agreement after the U.S. opted out, but they have left those elements beside the table to take up again if the U.S. decides to re-engage. The Japanese and Australians have been particularly clear that they hope that the U.S. will reconsider.

The Japanese, for example, already ratified the old TPP with the U.S. desired positions embodied in it. More widely, TPP-11 members say they would welcome other countries joining the pact if they are willing to accept the obligations it includes.

A number of Asian countries have expressed interest in joining, as has the U.K., and some think Colombia could be a candidate too. Several members have indicated that membership is open to China too, if they are willing to accept the accord’s provisions.

Mexico and Canada gain some space 

Mexico and Canada gain preferential access to new markets without tariffs where they can sell their goods, buy inputs at lower prices and have lower-priced goods for their consumers. American companies and producers will be disadvantaged.

One example is beef sales to Japan, as beef will now enter duty-free from CPTPP countries, while U.S. beef will face a 38.5-percent tariff. Both Mexico and Canada will still be overwhelmingly dependent on the U.S. for their exports, but the TPP-11 is part of their effort to diversify markets. The CPTPP is expected to bring a bigger trade benefit to Mexico and Canada without the U.S. participating. 

Spirit of community contrasted with uncertainty and threats

The new CPTPP embodies the idea of building opportunities for prosperity through economic integration among partner countries, while setting new, higher trade standards. It is based on the idea that trade agreements can be win-win, if done well.

In contrast, the messages flowing from the U.S. approach to the North American Free Trade Agreement (NAFTA) and to the steel and aluminum tariffs appear to be filtered through a zero-sum lens of win-lose.

Allies who have fought and died with Americans and collaborated on problems around the world are grouped with countries who have not played by the trade rulebook. They are being told they need to compete for a break from the U.S.

Neighbors and partners are not criticized for breaking trade rules or good market practices as much as for selling more to the U.S. than the U.S. sells to them.

The U.S. may be able to get its way by throwing its economic power around, but it could also face costly counter-measures from trading partners, as the EU has already threatened, and cause real hardship for U.S. workers. Even more dangerous, the resentment and uncertainty about America that is generated could be around for a long time.

Such ill will could have very negative consequences in our relationships with allies and non-allies. In North America, for example, positive views of the U.S. in Mexico have already dropped from 66 percent to 30 percent.

This may be helping to fuel the emergence of a more distant relationship with our southern neighbor, which plays a vital role in securing our homeland, as well as in buying our products. 

A lot will depend on where the U.S. goes with its trade policy, tariffs and with the NAFTA negotiation in the months ahead. Nevertheless, we can see a counter model with the new Trans-Pacific Partnership.

Earl Anthony Wayne is a public policy fellow at the Wilson Center, a former assistant secretary of state for economic and business affairs, the former U.S. ambassador to Argentina and the former U.S. ambassador to Mexico.