“America First” may not necessarily mean America alone. But do other countries trust the White House to establish fair trade rules that can benefit all parties and not just the United States? That’s the question being asked by U.S. trading partners worldwide as President Trump suggested a change of heart when it comes to multilateral trade agreements.
U.S may be prepared to consider rejoining TPP
His remarks at the World Economic Forum’s Davos meetings last week suggesting the U.S. may be prepared to consider rejoining the Trans-Pacific Partnership (TPP) trade deal once again have been met with cautious optimism, especially as the TPP is expected to conclude with the remaining member countries within the next few weeks.
The successful conclusion of TPP-11 will not only change the economic landscape of the Asia-Pacific, but more significantly, demonstrate clearly that the world will continue to move on without the United States.
A growing confidence in framing deals without bending to Washington’s demands may well impact the outlook for existing trade deals that are currently being reconsidered by the U.S., most notably the North American Free Trade Agreement (NAFTA).
Expectations are high that TPP-11 countries will conclude negotiations by early March. The deal would unite Japan, Australia, New Zealand, Malaysia, Singapore, Brunei, Vietnam, Chile, Peru, Mexico and Canada under the world’s most ambitious trade agreement to date, with a combined GDP of over $12 trillion.
It will lower tariffs among member countries, reduce red tape in doing business across borders, facilitate global e-commerce and enhance protection of intellectual property rights, to name but a few benefits.
Because the United States actually has a trade surplus in the services sector with the rest of the world, the failure to take advantage of enhancing rules that will strengthen the United States’ competitive edge will undoubtedly be a blow for corporate America.
In addition, TPP-11 will bring member countries closer together politically as well, given that stronger trade relations can deepen diplomatic relations and, above all, trust between signatory nations.
Lack of trust from other countries, meanwhile, will be a huge hurdle for the Trump administration if it actually does try to move forward with redesigning the TPP as a condition of its accession to meet the needs of the United States.
The White House’s unwavering focus on reducing bilateral trade deficits in manufactured goods alone has made it difficult for countries to be able to craft a deal that could benefit all sides and not just the United States.
That’s not to say what President Trump wants is unreasonable, and no country would disagree with his argument that free trade “needs to be fair and it needs to be reciprocal. Because, in the end, unfair trade undermines us all.”
Focusing solely on bringing down the U.S. deficit in the manufacturing sector on a bilateral basis, however, has been seen as an ineffective and certainly not forward-looking.
In pursuing future trade deals, the administration would best be served by acknowledging the pole position that it has in the services sector and ensure that its advantages be preserved by establishing international rules that would protect them.
That was undoubtedly one of the biggest opportunities lost by withdrawing from the TPP. Still, Washington clearly has an opportunity to do so through renegotiating NAFTA.
Both Canada and Mexico have readily acknowledged that NAFTA is due for an update, given the technological advancements and seismic shifts in supply chain management since the trilateral deal was signed over two decades ago.
With Mexico, Canada and the United States all part of the TPP, the trilateral was effectively going to act as a revamped NAFTA. But as NAFTA negotiations focus more on increasing barriers in hopes of reducing the U.S. trade deficit and not on seeking common ground between the three countries, the allure of the deal will invariably weaken for Canada and Mexico.
While even a successful TPP-11 would by no means mitigate losses that would be incurred as a result of a collapse of NAFTA negotiations, a new Asia-Pacific trade deal would increase expectations that sooner or later, the United States too would not be able to turn away from the opportunities that platform would offer.
But the train is leaving the station
Indeed, it would not be unreasonable to think that the prospect for TPP-11 to become a reality spurred Trump in Davos to state, “If we did a substantially better deal, I would be open to TPP.”
A better deal for the United States should be one that protects the longer-term growth prospects of the nation, rather than specific sectors.
So, instead of increasing tariffs to protect targeted industries, such as solar panel and washing machine manufacturers, the White House’s trade policy should focus on protecting the advantages that the U.S. already has through enhanced intellectual property protection and establishing clear e-commerce rules, which would benefit all industrialized countries.
The Trump administration has already taken a firm step toward working collaboratively to ensure fair trade rules. In December last year, the U.S., EU and Japan released a joint statement declaring that they would work together within the World Trade Organization framework to combat severe excess capacity in key sectors, such as steel, and to fight against forced transfer of technologies.
While no single country was called out, it was clear that China was the target of the wrath of the three major economies, as all have suffered as a result of Beijing’s distortionist trade policies.
U.S. frustration in tackling the trade deficit with China is shared worldwide, and efforts to take steps to level the playing field with Chinese businesses would certainly be a welcome one.
President Trump’s dislike of multilateral deals may never change. But as the Trump administration begins to acknowledge the strength in numbers at the negotiating table, the White House will need to begin assessing trade objectives that go beyond simply reducing bilateral deficits.
In the meantime, the TPP train is likely to leave without the United States on board, giving both Canada and Mexico a stronger bargaining chip against the White House.
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