Elephants in the Room

3 Strategies U.S. Trade Partners Should Pursue Post-TPP

One might be tempted to preach patience, but it is worth remembering that the Obama administration dragged out its trade negotiations for a very long time before ultimately failing

US President Donald Trump prepares to sign several executive orders in the Oval Office of the White House in Washington, DC, January 23, 2017.
Trump on Monday signed three orders on withdrawing the US from the Trans-Pacific Partnership trade deal, freezing the hiring of federal workers and hitting foreign NGOs that help with abortion. / AFP / SAUL LOEB        (Photo credit should read SAUL LOEB/AFP/Getty Images)
US President Donald Trump prepares to sign several executive orders in the Oval Office of the White House in Washington, DC, January 23, 2017. Trump on Monday signed three orders on withdrawing the US from the Trans-Pacific Partnership trade deal, freezing the hiring of federal workers and hitting foreign NGOs that help with abortion. / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)

For much of the last 70 years, the United States has been such a dominant leader on trade that the foremost question for U.S. trade partners was whether to go along with or attempt to amend U.S. plans. That era is at least in abeyance, if not over.

At the moment, the United States does not even have a trade strategy. President Donald Trump has withdrawn the country from the 12-nation Trans-Pacific Partnership (TPP), and his people have made vague and sometimes-conflicting noises about what might come next. There are promises that the United States will strike new and better agreements. Maybe bilateral rather than multilateral. Maybe reviving elements of the TPP in different forms, such as agreements with Japan, or with Canada and Mexico.

So where does this leave U.S. trade partners? One might be tempted to preach patience, but it is worth remembering that the Obama administration dragged out its trade negotiations for a very long time before ultimately failing. The United States first announced its intention to join the TPP in September 2008, now almost nine years ago. U.S. partners have been waiting for a while. Yet the United States is far too important a player in the global economy for other countries to ignore.

In lieu of solving this problem, here are three considerations that U.S. trade partners should keep in mind while formulating strategy:

1. The jealousy play. Even during the Obama administration’s ill-fated push for TPP passage, it was clear that fear of China could be a serious motivating factor. The repeated — if misleading — refrain was that if the United States did not set the rules of global trade, China would. This was misleading because China has long been reluctant to set global rules. The trade agreements for which China pushes are often qualitatively much different from those that modern multinational businesses seek (less concern for things like rules governing services, government procurement, regulatory barriers, etc.). For U.S. partners, then, inviting China into a rump TPP or avidly jumping into China’s Regional Comprehensive Economic Partnership offers fewer commercial benefits. And there can be foreign policy hitches when partnering with the Chinese (see, for example, Korea and Terminal High Altitude Area Defense). It is unclear whether balance of power considerations would be enough to lure the Trump administration back to broad trade deals.

2. Dessert before vegetables. If one considers the elements of any broad trade deal, there are popular and unpopular parts. Sometimes the divide is along mercantilist lines — new market access for exporters is popular, new import competition is not. On other issues, as with investor-state dispute resolution, there are measures that the business community considers important, but that stir inordinate popular opposition. As the Trump administration considers smaller, bilateral trade deals with select partners, there will be a serious temptation to pick off the more popular elements and forsake the rest. The danger of this is the same as that of offering your kids dessert before vegetables: When it comes time to deal with the stuff that’s less sweet but still good for you, appetites may disappear. So these small deals can have long-term costs.

3. Face saving. This is not the first time the United States has wavered on trade liberalization in the wake of an election, though it may be the most serious. During the 1992 election, Bill Clinton criticized the North American Free Trade Agreement. In the 2008 election, Barack Obama attacked completed trade deals with Colombia, Panama, and South Korea. In each case, a face-saving tweak was found that later let these presidents embrace the deals they had spurned. U.S. partners in the TPP have talked about pursuing a “TPP minus 1” (everyone but the United States). Such a deal would necessarily involve those partners accepting some very different balances of benefits and costs, given the absence of the United States. More seriously, though, completing the deal without U.S. participation could cut off the possibility of a U.S. return to the talks with some subsequent face-saving modifications. Given Trump’s vehement denunciations of the TPP, the possibility of return may seem far-fetched, but even the Trump administration is starting to recognize that the TPP offered some things that the Trump team wanted (Harley Davidson market access, anyone?). An alternative is to start working on a “TPP 2.0” that could draw the United States back in the future.

Crafting a global trading system without the United States as a central player is a daunting task. U.S allies must hope for America’s quick return to a constructive role. In the meantime, they have some difficult choices to make.

Photo credit: SAUL LOEB/AFP/Getty Images

Phil Levy is Senior Fellow on the Global Economy, The Chicago Council on Global Affairs, and teaches strategy at Northwestern University’s Kellogg Schoool of Management.

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