Fraser Forum

TPP redux—The Art of the Bad Deal

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You encourage 11 of your allies to get together with you in a trade and investment deal. You impose structure and content on it. Then at the last minute you decide you yourself aren’t going to join. After they go ahead and finalize the deal on terms suitable to their own interests you decide, well, maybe you’ll join after all.

Is this really the best way to maximize your leverage and influence?

It’s basically good news that President Trump, author of The Art of the Deal, has asked his trade representative and chief economic adviser to figure out potential changes in the Trans-Pacific Partnership trade deal that would allow the United States to join. It will be exasperating, no doubt, for the 11 countries, including Canada (that signed the deal in Santiago, Chile on March 8) to have to sit down and renegotiate to let the U.S. back in. But in multilateral trade deals, bigger is usually better and, face it, the U.S., while increasingly the indecipherable nation, is also still the world’s indispensable nation. With the U.S. aboard, TPP goes from 13 per cent of the world economy to 40 per cent.

For smaller countries, access to the U.S. market is a major prize. For the U.S., by contrast, it’s certainly nice to get better access to Japan, Australia, Vietnam and maybe even Canada and Mexico (though most of its trade-dealing with them occurs through NAFTA, which is currently in renegotiation). But it’s not much more than just nice. The 11 TPP countries aren’t peanuts. Thirteen per cent of the world economy is 13 per cent. But when you yourself are almost twice that large the gains from trade are more modest—if also less transformative, which has always made the U.S.’s holding back at least a little puzzling. Of all the TPP countries, it probably has the least to fear from trade competition. Drive along one of its major interstates for a few hours and you get a sense of how big, varied and dynamic its economy is.

President Trump’s protectionism is probably the one constant in his policy views over the years, so his reluctance to commit to TPP was not surprising, especially since he had promised during the election campaign to withdraw. Pop psychology might put his views down to the influx of Japanese money into the New York real estate market in the 1980s, such capital inflows being the inevitable flip side of trade deficits.

There’s also a more intellectually respectable argument for American resistance to multilateral Asian deals (though whether the president is aware of it is another question). A new book from Princeton University Press by U.S. foreign affairs specialist Victor D. Cha argues that U.S. postwar relations with Asia have been based on bilateral agreements in a “hub-and-spoke system,” with the U.S. being the hub and Asian partners, mainly Japan, Taiwan and Korea, being spokes.

Why hub-and-spoke?

The U.S. wanted tight control over its defeated enemy, Japan, and didn’t want regional strongmen such as Taiwan’s Chiang-Kai-shek drawing it into a war with Communist China. (In postwar Europe, by contrast, U.S. diplomacy favoured multilateral “network” systems such as NATO and the European Common Market.)

Reluctance to give up a strategic approach that seems to have worked pretty well would only be natural, if in fact that were part of the explanation for American standoffishness regarding TPP. The Obama administration did agree to at least one multilateral Asian deal, though only because it concluded it was, as an administration official quoted by Cha put it, “a bad idea whose time had come.” It did also push TPP, however, and was explicit about how the partnership would offer a strategic counterweight to China’s economic influence in the region.

Whether the U.S. is really serious about getting back into TPP remains to be seen. Policy established by presidential tweet and press conference pronunciamento has proved more than a little inconstant. Many governments around the world, like many ordinary observers of this White House, seem to be learning to treat it as white—or customizing for this president—orange noise.

 

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