The clatter surrounding the US-China trade war has further diminished the memory of the Trans-Pacific Partnership (TPP), which was negotiated by President Obama and subsequently ditched by President Trump. If implemented as intended, TPP would have set the rules for 40 percent of the world’s trade. It may have offered an alternative to a trade war.
What has gone largely unnoticed, at least in the United States, is that the 11 other nations in the partnership kept talking and formed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11). The new agreement has been ratified by a majority of signatory countries and went into effect December 30, 2018.
The terms in TPP-11 are largely the same as the original TPP, with notable exceptions.
The CPTPP omits key provisions sought by US trade negotiators, such as longer copyright terms, automatic patent extensions and unique protections for new technologies, including biologics.
The basic agreement eliminates or reduces tariffs, liberalizes cross-border service restrictions, opens markets to foreign investment, establishes e-commerce guidelines, makes it easier for small business to engage in trade and strengthens intellectual property protection and enforcement. TPP-11 also contains labor and environmental standards, transparency rules and restrictions on monopolies and state-owned enterprises. China was excluded from conversations leading to the TPP and is not one of the TPP-11 members.
The TPP’s origins date back to President George W. Bush who called for trade negotiations with the leading Pacific Rim economies. Obama took up the TPP as part of his pivot to the Asia Pacific – and as a counter-balance to China’s growing economic dominance and influence. Trump withdrew from TPP to keep faith with a campaign promise and to pursue bilateral trade negotiations chiefly aimed at reducing trade deficits. There are reports a US-Japanese bilateral agreement is near final agreement. The United States, Canada and Mexico have negotiated an updated version of the North American Free Trade Agreement, but it remains stalled in Congress.
Since withdrawing from the TPP, Trump has imposed rounds of tariffs to force China to modify its intellectual property rule, forced technology transfer policies and state-owned business advantages. US businesses are wary of a continuing trade war because of disruptions to supply chains that are deeply embedded in China. Meanwhile, hard-earned export markets for products such as soybeans and lobsters have shrunk as the Chinese have turned to Russian farmers and Canadian lobstermen.
At times, it seems as if the United States lacks real leverage to win Chinese concessions. Experts who track China say US views that its Asian competitor is merely a low-cost outpost for outsourcing overlook growing Chinese competence for turning innovation into products. An example is an investment by Johnson & Johnson, which invested $180 million in a factory and a science hub for “problem-solving scientists” in the bio-pharmaceutical sector.
Chinese leaders have loftier ambitions. They want to be innovators, not just implementers. They have set their sights on artificial intelligence as the next major disruption of technology and manufacturing. China is installing electric charging stations through its vast territory because it wants to be the world’s leading producer of electric vehicles. For years, China has sent many of its best minds to study at American universities. Now, it is actively recruiting for the return of many of those talented minds to support its innovation ambitions.
Along with its innovation agenda, China is investing heavily in infrastructure, with a massive Belt and Road Initiative, which involves investments in 152 countries in Asia, Europe, the Middle East, the Americas and Africa. Re-establishment of the Silk Road is a real-life metaphor for recreating historical land and maritime links that in the future will connect China’s industry to most of the rest of the world – and potentially isolate the United States. The Trump administration hasn’t seriously proposed a major infrastructure investment package and instead is fixated on building a border wall with Mexico, the third largest US trading partner behind China and Canada.
Which brings the conversation back to TPP or, more precisely, TPP-11. With the benefit of hindsight, a contemporary trade alliance with major Pacific Rim economies seems like a pretty good insurance policy to spreading Chinese influence and continuing intransigence on what America views as fair trade.
The TPP-11 carefully dismissed US planks, referring to their deletions as “suspensions,” leaving an opening for the United States to rejoin the partnership. Trump briefly entertained rejoining, but he changed his mind. Then he launched his tariffs, trade wars and tirades against windmills.
As the US-China trade war shows no quick or obvious exit route, it is worth pondering whether another approach might have achieved better results. Economists warn the continuing trade war is slowing global economic activity, perhaps by as much as $585 billion by next year. The trade war’s unintended consequences include reducing US corporate investment, disrupting the stock market and threatening a recession. Economic studies predicted TPP would have boosted the US economy, adding $130 billion to US gross domestic product by 2030.
Opposition in both political parties led to the scuttling of TPP, largely over predicted losses in US manufacturing jobs. The studies indicated those job losses would have been offset by gains in the agricultural and service sectors.
The future of manufacturing jobs is itself problematic, especially with advances in robotics and AI. One commentator said globalization has already “decapitalized” much US manufacturing, which he says is unlikely ever to return.
US manufacturing employment began rebounding in the recovery following the Great Recession and continued in the first 28 months of Trump’s presidency (525,000 under Obama, 471,000 under Trump). However, manufacturing job growth has dropped off markedly in 2019. The aggregate number of hours worked in in US manufacturing has backed off to what it was last year. Forward-looking indexes predict a sharp retraction in manufacturing, in part due to the US-China trade war and rising tariffs. Manufacturing wage growth has lagged overall wage increases.
A fair assessment is that the United States is not experiencing a manufacturing renaissance under current trade and tax policies – and without the TPP.
As reported by the Council on Foreign Relations, “[TPP] would have expanded US trade and investment abroad, spurred economic growth, lowered consumer prices and created new jobs, while also advancing U.S. strategic interests in the Asia-Pacific region.” That’s a much rosier outlook than what’s on the horizon with continuing US-China trade war.