Southeast Asia from Scott Circle: Will Trump’s “America First” Result in U.S. Economy Being Left Behind in Asia?

Will Trump’s “America First” Result in U.S. Economy Being Left Behind in Asia? 

By Murray Hiebert, Senior Adviser and Deputy Director (@MurrayHiebert1), Southeast Asia Program (@SoutheastAsiaDC), CSIS

Seven months after President Donald Trump pulled out of the Trans-Pacific Partnership (TPP), many in the United States view the 12-nation trade pact as all but dead. But that’s far from accurate, at least outside of the United States.

Although most countries in the Asia Pacific viewed the United States’ exit from the TPP with considerable alarm and anxiety, many of them are wasting little time trying to cobble together other preferential trade arrangements that could have considerable negative impact on the U.S. economy down the road.

The TPP-11—the original 12 minus the United States—have met several times in recent months to see if they can rework the agreement without Washington. Japan’s goal is to try to have a TPP-11 deal in place by the time of the November Asia-Pacific Economic Cooperation (APEC) summit in Vietnam, which Trump is slated to attend.

The next round of TPP-11 talks will be held in Australia in the next few weeks. The big question is whether the remaining members will be able to sustain the momentum required to clear away the remaining hurdles to forge a new pact. To complete the agreement they need to change the rules to reflect the fact that the deal has shrunk without the U.S. economy. The original rules had the TPP going into force after notification by at least six countries that together had a gross domestic product (GDP) of 85 percent of the signatories. The United States made up 60 percent of the grouping’s combined GDP.

Meanwhile, the United States’ withdrawal from the TPP has increased interest in the 16-member Regional Comprehensive Economic Partnership (RCEP), which includes the 10 ASEAN member states plus Australia, China, India, Japan, New Zealand, and South Korea. Together they make up 30 percent of global GDP and a quarter of world exports.

The goal of many of the members is to finalize the RCEP by the end of 2017, but they still have a considerable way to go. Among many other issues, India frets that it will be overwhelmed by manufactured products from China, even if New Delhi is confident it can compete on services.

Some see the RCEP as an alternative to the TPP, but that’s not really the case. The RCEP is mainly an effort to harmonize the differences between the various trade deals that the ASEAN countries already have with the other six RCEP countries. The RCEP is not as ambitious as the TPP on issues like labor, the environment, intellectual property, state-owned enterprises, and the digital economy.

Whichever trade regime—the TPP or the RCEP—is completed first could play an important role in setting a precedent for the future regional trading architecture. This has prompted Japan and Australia, among others, to push hard to rescue the TPP or to bolster the RCEP to include more rigorous TPP-like elements.

At the same time, an August 7 analysis by Politico Magazine (http://www.politico.com/magazine/story/2017/08/07/trump-tpp-deal-withdrawal-trade-effects-215459) found that TPP-11 members were involved in a surprising 27 separate trade talks, including among themselves, with other countries such as China, and with trading blocs like the European Union (EU). The magazine pointed out that these negotiations could particularly hurt the U.S. agriculture sector, which was expected to see trade increase $10 billion over 15 years under the TPP, according to the International Trade Commission.

Australia, New Zealand, and the EU are negotiating to lower tariffs that would give them a competitive edge over U.S. agricultural exports, Politico reported. A Japan-EU deal will give European pork producers a two-dollar-a-pound leg up over exports from the United States. Another deal will remove a 15 percent tariff on European wine that U.S. exporters will continue to pay. Politico also cited the example of Australia negotiating a 19 percent tariff cut on beef exports to Japan that American farmers will continue to pay.

Congress has many priorities when it returns to Washington in September, but it ought to consider doing American consumers and producers a favor by holding hearings on how much pulling out of the TPP is costing the U.S. economy at a time when other countries are charging ahead with preferential agreements that exclude the United States.

It is great that President Trump has agreed to attend the APEC summit in November, but what will he bring to the meeting beyond calls for about half of its member economies to reduce their trade surpluses with the United States? Other leaders, including Chinese president Xi Jinping and Japanese prime minister Shinzo Abe, will arrive ready to tout their various market opening agreements and negotiations during the accompanying APEC CEO summit.

Few if any countries want to exclude the United States from the economy of the Asia Pacific. China today is the largest market for most Asian countries that earlier looked to the United States as their primary economic partner. But most of those countries still want the United States to play a role in economically balancing China because they recognize the dangers of depending too much on one market. U.S. allies and friends like Japan, Australia, and Singapore saw the TPP as a way to keep the United States engaged in the region at multiple levels beyond American security arrangements.

Trump earlier promised a raft of “beautiful” trade deals to replace the TPP, but after seven months in office the new administration has done little to spell out a detailed strategy about how it plans to engage the most economically vibrant region of the world. Observers might be forgiven for wondering if “America First” is going to result in America left behind.

Murray Hiebert is senior adviser and deputy director of the CSIS Southeast Asia Program.

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