Donald Trump came out recently with arguably his first real decision on his relatively protectionist, isolationist and anti-globalist foreign policy.
He decided to withdraw the United States of America from the negotiation process of the Trans-Pacific Partnership.
Firstly, the scope and extent of the TPP must be noted:
- It would reduce prices on imported consumer goods which would benefit low-income workers.
- U.S incomes were predicted to increase slightly (by about +0.4% or so).
- The deal would result in a very minute number of jobs lost to other countries, however, in the longer term it would be offset by employment gains in other sectors.
- The TPP was predicted to radically improve working conditions in developing countries.
Basically, if USA chooses not to ratify to the TPP all the aforementioned changes wouldn’t occur.
This means there would be no benefits for low-income workers, no increase in U.S incomes, no long-term gain in jobs and no improvement of working conditions in other countries.
If we were to assume that these were the only changes that would occur, the overall effect (or the lack of) on US trade, business and international relations would be relatively minimal. The TPP could be, in essence, viewed as only a missed opportunity and nothing much.
However, there are many more unaddressed concerns.
The first would be China.
China was particularly excluded from the negotiation of the TPP.
Hence, if the TPP were to be achieved it would boost trade with various Asian countries and thereby limiting Chinese influence on them.
Since the time Donald Trump won the election in mid-November, China has been aggressively moving on with the Regional Economic Comprehensive Partnership.
The RECP was an initiative which would improve economic relationships and boost trade among six important nations, namely: Australia, India, Japan, New Zealand and South Korea.
Obviously, if the RECP were to be put in effect, Chinese influence over the region would dramatically expand.
In fact, several countries part of the TPP who went out of their way to negotiate such a trade deal with the U.S have started backing up now and shifting their focus to RCEP.
It is hard to predict, what this would exactly mean for South-East Asia, yet, U.S economic policy with the countries is bound to go down severely.
More importantly, it would tough for any incoming administration to reverse Trump’s decisions.
More importantly, US already has many free trade agreements with countries such as Australia, Canada and Mexico. Still, there is one important nation which is yet to engage in free trade with it: Japan.
USA would face major international tariffs on trade with Japan, should the RCEP be put into practice.
In this way, the USA would be at an extreme disadvantage in a crucial market.
Finally, not going into the TPP will make a difference.
In conclusion, unlike most people think, USA would actually be better off in the TPP than without it simply because American influence in Asia would be replaced by that of China and trading markets with Japan and other important economies in the region would become much harder to successfully engage in.