United States Withdrawal from TPP
Introduction
The Trans-Pacific Partnership (TPP) is an agreement that had proposed trade between 12 countries namely; Mexico, Australia, Brunei, Canada, Malaysia, Singapore, Chile, Japan, New Zealand, Peru, Vietnam and the United States. As Republican Party Nominee, Donald Trump was campaigning, in one of his presidential campaign speech he mentioned that one of his acts if he was elected was to withdraw United States from the Trade agreement. He cited reasons such as the trade agreement would hurt the economy of the country and also undermines the independence of the country. On January 23rd 2017, a few days after taking oath to office, President Donald Trump put his signature on a memorandum, officially withdrawing US from TPP. As a result of this withdrawal China got the upper hand and an opportunity to write Asia’s trade playbook. United States would have had huge economic gains from being a member of the TPP. The country’s withdrawal from this trade agreement has harmed its own interests though it can rejoin the agreement if it wants. The path to rejoin the trade agreement may seem smooth and there is an urgency that the country takes action as soon as possible since reentering the agreement again in future may seen a little difficult since the country will need approval from all member countries including China which is in control of Trade in Asia if it was to join TPP.
After the United States left TPP it was seen like that was the end of the trade agreement and other countries would follow suit. However, none of the eleven remaining nations opted to leave the trade agreement, instead they held new negotiations amongst themselves on 8th March 2018 and they resigned the trade agreement forming the Comprehensive and progressive Trans-Pacific Partnership (CPTPP) that is also referred to as TPP11 formed by eleven nations (Chow, Sheldon & McGuire, 2018). This new partnership between these nations has been scheduled to be effective in the next two years. After the America withdrew from TPP it announced trade policies that threatened to reverse all trade agreements that were not favorable to the country. An example of these polices is increasing tariffs on Steel and Aluminum which the country did on March 1st 2018, and South Korea sat down with the country and revised the US – Korea free trade agreement and Korea agreed to sell less steel and aluminum to the US in order to avoid the new tariffs (Chow, Sheldon & McGuire, 2018). The United States is aiming to make all trade deal with other countries a win-win situation by imposing these new tariffs and openly admitting that there is room for negotiations. This new trade agreement cannot be referred to as new since KORUS has been around since 2012. This six year deal allowed both countries to sell more than machinery worth over sixty billion dollars with few restrictions. The 25% US tariff placed on Korean trucks allows America to sell its vehicles to Korea (Chow, Sheldon & McGuire, 2018). These are cars that automakers in America are not even close to making.
Trumps administration was unhappy with the fact that South Korea was selling more cars and more stuff to America than America was selling to them. America has been in trade with South Korea for long that it was named as the sixth largest trading partner of the country. In 2016, the United States recorded a deficit worth $27 billion with South Korea and president Trump wanted to close this large gap and by leaving TPP he was free to increase tariffs by renegotiating KORUS and South Korea agreed to limit the steal that it was exporting to the country to 70% of what it was exporting before (Chow, Sheldon & McGuire, 2018). In the short run this deal is a good one for US but in the end South Korea is not willing to buy cars assembled in America. This might imply the economic independence the president the president was seeking from withdrawing from TPP might be short lived.
The United States administration might have overlooked the consequences of withdrawing from TPP (Stokes, 2018). The first mistake trumps administration did was overlooking the wide economic benefits that would have resulted from it being a member of TPP. Being a member of this trade agreement would have increased trade and economic benefits that the country would have incurred. These benefits will now be rounded off to help the eleven remaining countries (Lee, & Itakura, 2017). Maybe America’s strategy was to withdraw from this trade agreement so that it could negotiate bilateral agreements with each of the countries on a separate basis as single partners but not as partners bond by a trade agreement. However, it has not been determined how long it can take the country to negotiate with the remaining countries in TPP. Even if the United States was to complete these negotiations it is still unclear if the benefits that United States will reap out of these bilateral trade agreements will equal the benefits the country would reaped from being a member of TPP (Fergusson, McMinimy, & Williams, 2015). In addition to missing the benefits that would come from being a member of TPP significant strategies of the country would be compromised by the withdrawal.
Americas withdrawal from the trade agreement was going to allow United States to come up with ways of regulating trade in Asia, Chinas own backyard and United States chief rival in trade. Creation of TPP also aimed at containing China and it is not unmistakable to state that Chinas was the target for almost all major provisions of the trade agreement. During TPP negotiations the US left out China from the negotiations so that the country could not get the opportunity to challenge the standards that would be set by TPP (Chow, Sheldon & McGuire, 2018). The initial goal of United States was to make sure that its chief trade rival would not enter TPP and after the agreement was drawn they would confront China and make trade for the country difficult, the country would propose to China to either enter TPP or reject it and loose the trade benefits that came with it and if they rejected TPP China would be subject to tough new standards that would suppress its economy. However, China counteracted this act of America and came up with Regional Comprehensive Economic partnership (RCEP) which would be larger that TPP and to return a favor China demanded that United States to be excluded from the trade agreement (Chow, Sheldon & McGuire, 2018). China is a member of RCEP and United States withdrawal from TPP gave its chief rival in trade an upper hand.
United States withdrawal from TPP gives China’s competitors a golden chance to access the United States market and this improves China’s relative position. Michael Forman in final speech as the acting US Trade Representative stated that the countries withdrawal from TPP was the best gift any American president could give China. He went further and stated that this withdrawal would come with serious broad consequences; economic and strategic consequences. TPP would have been responsible for creating a free trade zone that would link 12 countries and the withdrawal of United States from this trade agreement can be referred to as a step back for the country (Bagley, 2019).
TPP expands beyond the limits set by WTO all in an effort to deal with sensitive to China. TPP would have presented United States with a chance to push China and make it play by the rules it set, China would be forced to stop stealing intellectual property, stop forcing Americans Firms to share their technology with then and finally if America would not have taken the decision of leaving TPP it would have gotten to finally stop China’s act of taking over and funding firm that are state owned (Chow, Sheldon & McGuire, 2018). Withdrawal of United States from TPP marked the end of Obama’s administration efforts of eight years that might have aimed to great the world’s largest free trade zone despite the fact that his efforts are seen to more geopolitical than economic. This withdrawal made America lose the only opportunity it had to make decisions involving trade in the East Pacific region. America was at the verge of limiting the ability that China had when it comes to distorting international trade but after its withdrawal from TPP it cannot be able to stop China from distorting International trade and now China under RCEP has the ability to make trade rules for Asia for the rest of 21st century (Posen, & Ha, 2017).
The Original TPP that the United States withdrew from would have given the country a chance to equal the playing field by allowing the United States to increase its exports by removing approximately eighteen thousand tariffs that are place on exports made by the United States and in return the United States would have removed 80% of the imports tariffs. This agreement had the potential to boost exports made by United States while at the same time creating more jobs from citizens of the 12 countries. The US would have been able to increase its exports by about $305 million per year by the time it was 2025 thus benefits most of the country’s industries (Amadeo, 2019). TPP would also have facilitated an increase of two hundred and twenty three billion dollars a year to the income of workers of member country with seventy seven billion dollars of the money going to U.S workers.
There is evidence that the United States has lost its market shares in Japan following its withdrawal from TPP. Market research has shown that in recent weeks the United States has registered low sales of wheat, pork and beef in Japanese market have reduced. America is being replaced by TPP member countries such as Canada and Australia (Politi, 2019). There is pressure on President Donald Trump to launch trade talk with Tokyo. These low sales by farmers in the Japanese market are an additional suffering to the high retaliatory tariffs that have been imposed by China on their products. Steve Daines who is a republican senator of Montana openly admitted that the United States was behind in Japan because their allies such as Canada had signed the agreement and are now enjoying the benefits of reduced tariff which the United States is not enjoying (Politi, 2019). A decrease of sales in the Japanese market as a result of the country’s withdrawal from TPP has put the nation in a disadvantaged position.
Despite the fact that United States will not be part of the trade agreement, United States owned enterprises in TPP member countries will still enjoy the benefits that will be accorded by TPP to the enterprise that are based in the in those countries (Santos, Thomas, Trubek, & Harvard Law School,2019). These enterprises will enjoy reduced tariffs and access a broader market under the preferential treatment of TPP which will also increase their regulatory alignment which will eventually benefits they headquarters that are based in the United States. As a result of this United States can partially enjoy the benefits of preferential treatment offered by TPP but in an indirect way only if it has a lot of enterprises that are located in the 11 remaining TPP nation members.
Donald Trump’s administration might have made the right steps by withdrawing form TPP. TPP was a trade agreement and a preferential agreement in this case. Trade agreements are often negotiated by states and the motives are always political ones. These trades are preferential because the more the powerful the states the more it shapes the negotiations of the agreement. Trump might been right that TPP wasn’t going to bring United States any trade benefit as Obama’s administration had stated. United States was in this agreement for political reasons and not for trade reasons and the former President’s speech confirmed this merely stating that the future of Geopolitics was going to be decided in Asia and the United States should make sure it is in the center on these discussions therefore United States place in TPP had to be secured (Cook, 2017). If the reason the country joined TPP were purely geopolitical then maybe on the bright side the United Stated Trade might not be hurt by its withdrawal from this trade agreement.
Conclusion
TPP was an a trade agreement between 12 countries, United States being among them but after Donald Trump was elected his first act as president was to withdraw US from the trade agreement putting an end to Obama’s administration eight years work. Trump gave reasons such as being in TPP undermined the country’s economy and freedom. Withdrawal of United States from TPP came with its consequences which the Trump administration might have ignored. This withdrawal gave China the upper hand it needs to control trade in Asia in the 21st century, it also gave China’s competitors to dominate the United States trade. US also lost the control it had in the Japanese market to Canada and Australia TPP members. America also lost the one opportunity it had to stop China from disrupting the international trade. Despite the many consequences United States might have derived a few benefits from the trade agreement. The United stated managed to renegotiate KORUS with South Korea and negotiations went according to how wanted although they can only enjoy these benefits in the short run. If China, its chief trade rival joins TPP and then the United States decides to re enter TPP then it will be hard for the country to do so. The disadvantages of leaving TPP are more that the advantages that the country has enjoyed and if the United States reconsiders to rejoin TPP then it should do so in the near future before it becomes impossible for it to reenter one of the worlds trade free zone.
References
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