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Death of the TPP

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Death of the TPP

What comes next matters more than what just happened. January 25, 2017
Politics and law

Earlier this week, President Trump formally withdrew the United States from the Trans-Pacific Partnership (TPP), a multilateral trade agreement signed by President Obama in 2016. Since the agreement never took effect, Trump’s move hardly changed reality. What matters now is the president’s next move. The possibilities remain remarkably open.

The Chinese government is surely pleased with the TPP’s death. The agreement pointedly excluded China and was as much a way to resist Chinese economic hegemony in Asia as it was an effort to liberalize trade among the 12 signatories. No doubt this is why Japan, to secure the deal, made agricultural concessions that it has steadfastly resisted for decades. Whether TPP would have hemmed China in will remain an open question, but it’s now one that China no longer has to answer in pursuit of its own bilateral and multilateral trade arrangements. The Vietnamese are the saddest to see the TPP go. They had hoped that the deal would attract U.S. investment away from China, though it is likely that Vietnam’s growing competitive advantages will secure such benefits even in the absence of the TPP.

For those who wonder what might have been, the effect on the American economy of the TPP’s 30 chapters spread over 5,600 pages will forever remain a mystery. The agreement’s complexity always created considerable ambiguity. The World Bank, the U.S. International Trade Commission, and the Peterson Institute for International Economics each concluded that the agreement would benefit the signatories’ economies—but only marginally, adding at most fractions of a percentage to real annual growth rates. Other studies were more skeptical. One produced at Tufts University concluded that the TPP would cost the United States almost 500,000 jobs. Two Nobel economists, Joseph Stiglitz and Paul Krugman, separately characterized the deal as primarily benefiting moneyed interests. Other academic and business criticisms of the deal pointed out that it provided no means to prevent currency manipulation, which remains the primary way nations these days unfairly influence trade.

Since it is highly unlikely that Trump will attempt to negotiate new multilateral or bilateral trade agreements, he has two options. He could give up entirely on efforts at trade liberalization, as much of his campaign rhetoric suggested he would, or he could approach trade in a less structured way, a tack he may have suggested implicitly with his dismissal of trade treaties as something other than free trade. On this last point, there is room for a measure of optimism that Trump, wittingly or not, leans toward the thinking of trade economists such as Jagdish Bhagwati. His view, like that of libertarian think tanks such as the Cato Institute and the Cobden Centre, differs violently with the media’s easy characterization of trade deals as a means to trade liberalization. Any deal—bilateral, trilateral, or multilateral—may liberalize trade among the signatories but otherwise exclude many more economies than it includes. In many cases, trade deals merely enlarge the area practicing protection. By effectively closing out most of the world, exclusive trade agreements deny all—those inside the agreement and those outside it—the greatest benefits of trade.

Unlikely as it seems now, Trump, in his turn away from trade deals, may have taken on this sort of reasoning. He might even revert to the U.S. trade stance that prevailed after World War II. For 25 years, the country avoided exclusive trade deals while pushing for the general removal of trade barriers across the globe. That effort bore fruit in the form of rapid growth for both the U.S. and the global economy. The world has changed since then, of course, but there is promise if Trump, having rejected the TPP, takes this direction. If, as seems more likely at the moment, Trump simply gives up on trade promotion and turns to protectionist measures, then economic prospects dim.

When a nation uses tariffs or other means to protect domestic production from foreign competition, it causes all sorts of hardship elsewhere in the economy. By raising costs or constraining supplies to industries that otherwise depend on imports, the protection accorded one area causes cutbacks and layoffs elsewhere. At the same time, stemming the flow of cheap imports raises costs throughout the economy and reduces living standards, often most severely among the classes that the protectionists most want to help. Should Trump’s obsession with lost jobs prompt him to go this route, the country may find itself worse off, not better.

Trump’s unpredictability has served him well as a negotiator. At the moment, all the country knows is that he has said “no” to the TPP and its like. As for what he might say “yes” to, the best the country has is hints. Since so much depends on what Trump decides, people might sleep better and plan more effectively if he were a little less inscrutable. 

Photo by Pool/Getty Images

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