As America Retreats, the World Moves Forward on Trade
American companies might not feel it yet, but they’re already falling behind their foreign competitors.
In the last six months, the United States has hurled itself off the chessboard that is international trade, leaving the Trans Pacific Partnership, threatening to leave or drastically rewrite NAFTA, and leaving a U.S.-EU trade pact to wither on the vine, all while hoping to fill the gap with bilateral trade deals. All the other pieces on the board, meanwhile, are taking advantage — and continuing to move.
While the White House has embraced an anti-free trade message at odds with nearly two centuries of economics, other nations have redoubled their efforts to make sure that the recent slowdown in global trade doesn’t become a permanent fixture by working to craft ambitious, multi-nation deals that lower tariff barriers and tackle longstanding obstacles to greater international commerce.
“The Trump administration has shown no desire to engage in any of the kinds of modern 21st century trade agreement talks that the rest of the world is moving into,” said Chad Bown, a trade expert at the Peterson Institute for International Economics.
Here’s a sampling of Washington’s once-courted partners who are now busily filling up their own dance cards, all while the United States shuffles along alone.
The European Union-Japan trade deal. This potential agreement, announced ahead of the recent G-20 summit in Germany which underscored Donald Trump’s isolation on everything from trade to climate change, would lower trade barriers on nearly all the goods the two sides trade.
The European Union, even in the throes of Brexit, is the world’s largest economic bloc; Japan remains the world’s third-largest economy. Both are anxious to find a replacement for the deals with the United States that each had spent years working on during the Obama administration.
“Although some are saying that the time of isolationism and disintegration is coming again, we are demonstrating that this is not the case,” said Donald Tusk, the president of the European Council, at a news conference in Brussels. “The world really doesn’t need to go a hundred years back in time. Quite the opposite.”
Europe wants to pry open the Japanese market to European foodstuffs, while Tokyo wants to sell more Japanese cars in Europe. The EU is expected to phase out a 10 percent tariff on Japanese passenger cars over a seven-year period. Japan, in turn, is expected to lower tariffs on European food products like cheese, pasta, pork and wine.
To smooth the way, contentious points like logging and whaling are left by the wayside. European and Japanese negotiators expect the deal to be finalized within months.
Regional Comprehensive Economic Partnership. This sprawling pact, China’s counter to the 12-nation Trans Pacific Partnership, would create a free trade zone between 16 Asian nations. Just as TPP deliberately left out China, RCEP does not include the United States. And now that the U.S. withdrawal from TPP leaves that once-giant pact smaller and uncertain, it has also made RCEP member nations more eager to see the pact through.
“If we can successfully conclude these negotiations quickly, it will be an important statement in favor of free trade and economic integration,” Singapore’s Foreign Minister Vivian Balakrishnan told reporters Monday in Beijing after meeting with his Chinese counterpart Wang Yi. Prior to Trump’s election, Singaporean Prime Minister Lee Hsien Loong warned leaving TPP would badly hurt U.S. credibility in Asia.
RCEP is as massive as TPP could have been. The TPP, the centerpiece of the Obama administration’s pivot to Asia, would have included economies amounting to 40 percent of world GDP and about 800 million people. By comparison, RCEP covers 39 percent of global GDP and 3.4 billion people. (It also includes India, another country left out of TPP.)
But RCEP is more modest than TPP — free trade with Chinese characteristics. The American-led trade deal would have created a free trade zone across the Pacific while also raising environmental and labor standards across the region. RCEP lowers tariffs — but does not address other issues.
Several signatories have expressed hope that the pact could be finalized by the end of the year, but previous deadlines have been missed. Douglas H. Paal, an Asia expert and vice president for studies at the Carnegie Endowment for International Peace, said India could end up being an obstacle to completing the deal.
“They don’t want it to happen,” Paal said on Indian Prime Minister Narendra Modi’s government. Modi, a protectionist like Trump, is pushing his “Make in India” initiative to keep jobs and money in his country, and India’s economy has been relatively closed for decades. “There’s a strongly held belief that this will bring in unwanted competition.”
Comprehensive Economic and Trade Agreement. This EU-Canada pact will largely go into force in September; all that remains is last-minute wrangling over European accords to Canadian cheese and pharmaceutical markets.
The agreement will eliminate 99 percent of tariffs between the EU and Canada. It also allows EU firms to bid on Canadian public contracts, the first time foreign companies will be able to do so. Once in place, CETA is expected to increase bilateral trade in goods and services by 22.9 percent, or $29 billion over time. In 2015, bilateral trade between the two sides was $72 billion.
One Belt, One Road. Though not strictly a trade pact, China’s push to connect East Asia to Europe via Central Asia and the Indian Ocean is winning new converts seemingly every day. Japan is now making cooing noises about joining President Xi Jinping’s biggest initiative, and Europe — especially Greece and much of Eastern Europe — is eagerly playing ball.
Meanwhile, the Trump administration has put its faith in laborious, bilateral trade deals with individual countries — on paper, at least. There’s been little or no action so far.
Trump has talked up a trade deal with the U.K., but that can’t happen until London leaves the EU, a process which could take years. Commerce Secretary Wilbur Ross has floated the idea of reviving a version of the Transatlantic Trade and Investment Partnership with the European Union, but European leaders have shown little interests in doing so.
Trump has also promised to rewrite the free trade agreement with South Korea — which only went into force in 2012 — which would be a spectacular waste of limited negotiating resources to revise a five-year old pact.
Meanwhile, American companies are the ones bracing for pain. Japanese carmakers like Toyota and Honda will gain greater access to the massive European market. But because TTIP is off the table for now, Detroit is out of luck. Southeast Asia and the Pacific Rim, which would have been pried open by TPP, are instead edging closer to Beijing and its model of international commerce.
“It’s really unclear what the Trump administration’s proactive trade strategy is, if there is one at all,” Bown said. “It seems as if their strategy is to disengage.”
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