Trade abhors a vacuum: China ready to lead Pacific should US falter

We are at a tipping point in U.S. international trade policy. President-elect Trump has announced that one of his first actions will be to issue a notification of intent to withdraw from the Trans Pacific Partnership (TPP) as part of “putting America first.”

Is this a harbinger of U.S. disengagement from international trade and specifically from Asia? Is “the pivot to Asia” finished? Understanding the consequences of losing the TPP requires a few different perspectives and the patience to see how the new administration’s policies evolve. 

The immediate political rationale is easiest to grasp. Trump is determined to keep faith with his supporters, and the TPP does not win any popularity contests among them.

{mosads}Free trade agreements are a tough sell to rust-belt voters and sentiment is becoming more negative. In October, Pew Research reported 72 percent of Trump supporters said free trade agreements have been a “bad thing” for the country and 66 percent said that the TPP specifically would be a “bad thing.”

While Republican voters have traditionally been supporters of free trade, Pew found 68 percent of Republican and Republican-leaning voters now view it as a “bad thing,” compared to 51 percent in May 2015. The President-elect knows what his political base expects of him. He needs their enthusiasm to be a successful president. 

The business case is different. With 95 percent of the world’s customers and 76 percent of the spending power outside of the country, U.S. businesses face a global business imperative.

That imperative is to sell to the fast-growing middle class in much of the developing world, particularly in Asia. The Organization for Economic Co-operation and Development (OECD) estimates the global middle class will increase from 1.8 billion people in 2009 to 4.9 billion by 2030.

Two thirds of these new customers will live in Asia. To satisfy them, U.S. companies are facing tough competition from European, Japanese and Korean companies, as well as strong new global companies in emerging markets.

American companies need the support of the U.S. government to “level the international playing field” and help them compete fairly. 

Free trade agreements help American companies overcome trade barriers and compete more fairly in foreign markets. The TPP would be a positive force for American exporters by removing some 18,000 tariffs on manufactured goods.

With 12 countries representing two-fifths of the world economy, the TPP would be the most significant and comprehensive trade agreement in history. Multiple studies have shown the TPP would produce overall economic benefits for the United States, and it garners strong endorsements from business organizations like the U.S. Chamber of Commerce and the National Association of Manufacturers. 

From the diplomatic perspective of America’s TPP partners and other friends in Asia, the announced withdrawal has caused nervous concern about U.S. engagement in the region.

In an Asia Society Policy Institute panel discussion this week in Washington, the consensus opinion was the United States must demonstrate a renewed commitment to leadership in the region.

Yoriko Kawaguchi, former Japanese Minister of Foreign Affairs, wrote in the group’s “Advice for the 45th U.S. President: Opinions from Across Asia” briefing book that “the Trump team could help reduced uncertainty for its regional partners by imparting a message of ‘continuity’.” The first foreign leader to meet with the President-elect was Prime Minister Shinzo Abe of Japan.

We don’t know what was said, but Abe has spent fistfuls of political capital to get Japan into the TPP and have it passed last week by the Japanese Parliament. 

Renegotiating the TPP would be a tough slog. From a trade policy perspective, there have been previous U.S. retreats from concluded free trade agreements such as President Obama’s move to reopen negotiations for trade agreements with Korea, Colombia and Panama after his election.

With strong union opposition to the agreements, Obama had opposed them in his 2008 campaign. He then successfully negotiated for better terms, particularly in regard to market access in Korea for American automobiles.

Congress easily passed all three in 2011. However, after eight years of tough negotiations, TPP partner countries like Japan, Australia and New Zealand already have made significant concessions and are unlikely to blithely go back to the table to give up much.

Trump may receive some respectful consideration but should not expect any conciliation on tough issues like currency manipulation, tobacco, dairy and protection for U.S. biologics.

Characterizing the TPP as a “potential disaster,” Trump has promised to pursue “fair, bilateral trade deals that bring jobs and industry back to American shores.” Among the 11 TPP partners, the United States already has free trade agreements with Canada, Mexico, Singapore, Australia, Chile and Peru.

As the third largest economy in the world and America’s fourth leading trading partner, Japan was the biggest potential gain for the United States in the TPP. With Abe’s proven determination to reignite the Japanese economic engine, the new Administration will need to develop a way forward.

There is an important final perspective to consider. China will view the U.S. withdrawal from the TPP as an opportunity to expand its influence in Southeast Asia.

The absence of a U.S.-led TPP would be a nice Lunar New Year’s gift to President Xi Jinping. Happy Year of the Rooster!

It would have the very real consequence of China’s filling the void through its participation in the Regional Comprehensive Economic Partnership, a proposed trade agreement between the Association of Southeast Asian Nations (ASEAN), Australia, China, India, Japan, South Korea and New Zealand. 

Diplomacy and business abhor a vacuum. The United States must move to actively engage with our partners in Asia. We also must help our companies compete to win with the growing Asian middle class.  The ultimate “Buy American” plan is consumer preference for American goods and services.

Charles J. Skuba is Professor of the Practice in International Business and Marketing at Georgetown University’s McDonough School of Business. He previously served as an official in the International Trade Administration under President George W. Bush.

The views expressed by contributors are their own and not the views of The Hill.