Date posted: 1/12/2016 6 min read

Trump, Clinton and the Trans-Pacific Partnership

Opposition to the Trans-Pacific Partnership is one of the few things that unite US presidential candidates Donald Trump and Hillary Clinton. But campaign politics don’t necessarily translate into actions in office

In brief

  • If the US fails to ratify the Trans-Pacific Partnership (TPP) it would be its first rejection of a trade deal since President Woodrow Wilson made the pursuit of free trade one of his “14 points” principles for world peace almost 100 years ago
  • It is technology that is responsible for far more of the “damage” to the US and modern economies than trade
  • The falling costs of global transport, increased mechanisation, robots and the internet are far more to blame for the changing structure of our economies than free trade

Photography by Josh Edelson, AFP, Getty Images

"I oppose it now, I’ll opposite after the election, and I’ll oppose it as President,” Hillary Clinton said in a speech in early August, seemingly snuffing out almost ten years of negotiation.

If the US fails to ratify the Trans-Pacific Partnership (TPP) it would be its first rejection of a trade deal since President Woodrow Wilson made the pursuit of free trade one of his “14 points” principles for world peace almost 100 years ago.

An ambitious trade agreement among 12 different countries that comprise almost 40 per cent of global GDP, the TPP was signed in New Zealand in February after more than five tortuous years of negotiation.

“It’s by far the most extensive ever with respect to number of issues it touches on and the depth of the commitments,” says former US Deputy Trade Representative Wendy Cutler. “It underscores the US commitment to the Asia-Pacific region. Recognition needs a strong economic leg.”

A broad and deep trade agreement among a diverse and important set of countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US — the TPP has considerable strategic, as well as economic, consequences. Ash Carter, US defence secretary, said in April the TPP was as important to him “as another aircraft carrier” in the Pacific.

It gives the signatory countries the opportunity to set the rules of commerce in the region that will form benchmarks for new and existing deals elsewhere.

This is why the US presidential campaign, and in particular Republican candidate Donald Trump, is shaping up to be a disaster not only for trade and growth, but for the US’s reputation and influence in the Asian region.

Split benefits

In any trade deal some workers and industries within signatory countries will lose out in the short-term as consumers turn to cheaper suppliers (freeing up income to spend on other goods and services).

The losers from TPP in the long-term will be those wanting the Asia-Pacific economy to be more dependent on China.

By 2030 the lift to real incomes in the US and Australia from the TPP would be barely more than 0.5 per cent, the lowest enhancement among the 12 signatories, according to recent estimates from the Peterson Institute for International Economics.

By contrast, incomes in less developed Peru, Vietnam and Malaysia would rise by 2.9 per cent, 8.1 per cent and 7.6 per cent, respectively. Such growth would lessen their dependence on China while the TPP would guide the development of their economies, institutions and businesses along lines similar to those in the “first world” — a dividend for the developed partners such as the US, Australia and Japan.

Chinese alternative

China’s real income would shrink slightly as a result of TPP, as the 12 signatories mopped up a larger share of Asian-Pacific trade growth.

China has, in fact, been quietly pushing for its own rival trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which includes 16 countries based around the ASEAN club of nations and countries that have bilateral free trade deals — including India, Indonesia, China, Australia and New Zealand.

RCEP isn’t as ambitious as the TPP in scope with far less agreement on labour, environmental and far fewer constraints on state-owned enterprises, which form the bedrock of the Chinese economy.

This is why the US presidential campaign, and in particular Republican candidate Donald Trump, is shaping up to be a disaster not only for trade and growth, but for the US’s reputation and influence in the Asian region.

Political ironies

Earlier this year senior observers, including the current US Trade Representative Michael Froman, were optimistic that the US Congress would ratify the deal at least in the “lame duck” session between the November presidential poll and the swearing in of the new president in late January.

In early August, this changed. Trump, who had successfully convinced many Americans that free trade is responsible for stagnant wages and growing inequality, ramped up his opposition.

“A vote for Hillary Clinton is a vote for TPP,” he said in a major economic speech in Detroit, prompting Clinton’s express repudiation a few days later.

Ironies permeate TPP politics. Firstly, while Trump is viscerally against the TPP, most Republicans in Congress are in favour of it. It was their majority that gave President Obama the power to negotiate it in the first place. An opportunity to hobble Barack Obama’s legacy has motivated most Republicans’ opposition so far.

Secondly, the issue holding the deal back in Congress is not manufacturing jobs, trade deficits or wages, but mainly US pharmaceutical companies.

“The issue is the length of data protection for a new generation of drugs called biologics; in the US they have 12 years of protection, while the deal provides for eight,” former trade representative Cutler, now a managing director for the Asia Society Policy Institute in DC, explains.

“It behooves them to look at the overall benefits from the agreement in terms of transparency and intellectual property; they have gained a lot from this deal,” she says.

Thirdly, stagnant wages and the loss of jobs in manufacturing that has fuelled some of the backlash against the TPP has nothing to do with trade.

“We can’t put technology back in a box any more than we can cut ourselves off from the global supply chain,” said President Barack Obama recently.

Indeed, it is technology that is responsible for far more of the “damage” to the US and modern economies than trade. The falling costs of global transport, increased mechanisation, robots and the internet are far more to blame for the changing structure of our economies than free trade.

National borders are becoming economically irrelevant too as economies interlock with each other. As Australia’s ambassador to the US Joe Hockey noted recently, in 1990 20 per cent of all global goods and service exports were intermediate goods [materials used in the production of other goods]. Today, three quarters of global exports are intermediate goods. That indicates that global and regional value chains are now the norm.

It’s very hard to shut out these powerful economic forces.

Soldiers of industry

Jennifer Harrison, a senior fellow at the Council of Foreign Relations in New York, says even the TPP won’t be fit for purpose in coming decades as the economic structure in Asia shifts away from a European-US model to one where the line between business and the state is blurring.

“We’re seeing a concentration of wealth in state-owned channels, from sovereign wealth funds to globally competitive multi-national state owned enterprises,” she says. 

Harrison’s new book, War by Other Means, dissects how Chinese, Russian and other governments have torn up the economic and business rule book that Western firms largely still play by.

“We forget that Bretton Woods and the current multilateral trade and investment systems were born at a time when the world’s largest trading partners were culturally similar and often allies,” she said.

“Many Chinese firms are quite candid about the fact they have interests that go beyond business,” she added.

Australia’s biggest mining firms experienced cyberattacks from China in 2009, during Chinalco’s ultimately failed attempt to buy Rio Tinto, whose negotiating team was also imprisoned while in China. And the US electrical grid was subject to cyberattacks from China around the same time.

“The US, for all its pro-free market bent, is much more sceptical about the strategic strings that come with Chinese state investment,” she says.

Some governments are taking things into their own hands anyway. Andrew Shearer, a senior analyst at the Centre for Strategic and International Studies in Washington DC, observes a growing “nativist sentiment” worldwide of rising protectionism and frustration with China.

Australia recently blocked two bids by Chinese firms for its state-owned power grids, while the new Theresa May government in the UK delayed a decision on a Franco-Chinese consortium’s bid to build the Hinkley Point nuclear reactor.

“She’s [May] reversing somewhat the real tilt to China under Cameron, where Britain rushed unconditionally to sign the Asia infrastructure bank, annoying the Americans,” he says.

What next for US?

What’s next for the TPP? A Trump victory would prompt Obama to send the ratifying legislation to Congress in the hope it is passed during the “lame duck” period before the new president has an opportunity to veto it.

If Clinton wins, the process is less certain. Under pressure from Trump and her erstwhile Democrat rival Bernie Sanders, she has backed away from her initial support for the TPP. She might hope it passes before she arrives in the White House. She might prefer to renegotiate parts of it as president, just as her husband did when he signed a slightly modified Northern American Free Trade Agreement inherited from the first George Bush in 1992.

For more on future workers see the Chartered Accountants ANZ future[inc] paper Disruptive Technologies: Risks and Opportunities.

This article was first published in the October 2016 issue of Acuity magazine.

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