Trump's plan to withdraw from TPP threatens global trade

Published November 24th, 2016 - 10:29 GMT
Employees producing rubber masks of US President-elect Donald Trump at the Ogawa Studios mask factory in Saitama, north of Tokyo. (AFP/Toshifumi Kitamura)
Employees producing rubber masks of US President-elect Donald Trump at the Ogawa Studios mask factory in Saitama, north of Tokyo. (AFP/Toshifumi Kitamura)

In a surprising but expected step, U.S. President-elect Donald Trump announced his decision to withdraw his country from the Trans-Pacific Partnership (TPP) on his first day in the White House, one of six immediate steps aimed at “putting America first.”

This announcement hasn’t surprised observers of Trump’s campaign, which has severely criticized the free trade considering that the U.S. has been the most damaged party from the liberation of trade with other countries like China and some European countries.

However, for others, who were expecting Trump to change his position after winning the elections felt, they were shocked because apparently they thought that electoral campaigns come along with exaggerated enthusiasm and promises that serve to attract audience applause, but would not be adopted as major economic plans for the world's biggest economy.

The Trans-Pacific Partnership has been considered the biggest regional trade agreement in the world. The TTP was adopted in 2015, but has not come into force yet, and is waiting for Congressional approval.

The Congress is now controlled by the Republicans, which rejects this agreement. But people were hoping Trump would dump the idea of withdrawing from TPP once elected.

The agreement includes 12 countries with 800 million people and covers around 40% of the global economy. If implemented, the TTP will eliminate more than 98% of customs fees and taxes on imports in its member states.

During his keynote speech at the Asia-Pacific Economic Cooperation (APEC) summit, former President Barak Obama stressed the importance of the agreement, urging Trump not to obstruct it.

Trump’s pledge to pull out of the deal was one of six points on which he promised immediate executive action.

He made the pledge in a short video message.

The 70-year-old property tycoon outlined a list of priorities for his first 100 days and executive actions to be taken “on day one” — on half a dozen issues from trade to immigration, national security and ethics — in a push to “reform Washington and rebuild our middle class.”

The Trans-Pacific Partnership provides the United States with many benefits including the following: customs duty exemptions on all the U.S. exports to the member states; providing new and vital markets in the region of Asia and the Pacific Ocean, and facilities for businesses and agriculture, which will contribute to raising the employment rate; and 59% of taxes will be eliminated on the U.S. imports.

The agreement will also suspend 70% of taxes on the U.S.-manufactured cars and goods like IT and telecommunication devices including smartphones and dairy products.

As per other countries that inked the TTP, Japan will benefit for the first time from customs duty exemptions on sugar; Canada and Mexico have exempted customs tariffs on wheat and barley; exemption will also cover oil derivatives like biotinate, propane, liquid natural gas in Vietnam; iron, cooper, and nickel in Peru; medicines, mechanical and electric devices, and auto-parts in Vietnam and Mexico.

Regardless of the easy access into the joint market among the agreement’s member-states, the TTP creates a group of trade regulations and investment among its members, which makes it the simplest trade agreement worldwide. TTP will exempt customs duties on 18,000 product including meat, dairy products, grains, sugar, fruits and vegetables, seafood, and raw industrial materials. It will also tackle topics of trade, modern investment like competitiveness and e-commerce, combat of corruption, and equality between public and private sector.

Trump’s withdrawal from the agreement has caused many long-term repercussions on the United States’ strategy known as the “soft power” like its integration in the region of Asia and the Pacific Ocean. During APEC, many of the region’s leaders have unofficially agreed on the importance of moving forward to ratify the TTP among the other 11 countries.

Trump’s announcement has threatened the agreement and has raised interest in the trade region led by China, which seeks to create a free trade zone with a new structure for commerce and economic integration.

Considering that the U.S. has been the biggest economy in the bloc representing 60% of the total economic power of the bloc, economists see the U.S. withdrawal from the TTP will lead to the agreement’s collapse.

Obama has said the TTP will offer the U.S. the opportunity to participate in drawing the trade regulations in the region instead of the decision-making for China. Yet, China has taken advantage of Trump’s decision and presented a new agreement-project during the APEC summit that includes 19 countries, some of them being TPP members.

The major commercial role played by China could attract different states particularly with the suggested frame of simple negotiations.

China is expected to insist on swiftly concluding its proposal, which will lead to fruitful talks enhancing China’s position as a decision-maker in the region.

However, the Asian giant will face many challenges because it does not enjoy the same political influence as the United States, which will make it difficult to hammer any free trade agreement before reaching political solutions.

By Lamia Nabil 




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