Once Hillary Clinton and Donald Trump became the major party nominees for president in 2016, the Trans-Pacific Partnership trade deal was doomed. Just about the only thing the two had in common aside from a mutual dislike of the other was a shared disdain for the TPP.
As president, Trump pulled the U.S. out of the TPP very early in his administration, a decision of which most of official Washington strongly disapproved. Now that he’s out and Joe Biden’s in, it may be time to pursue a regional Asian trade pact once again.
The TPP would have eliminated a staggering 18,000 tariffs on American exports and strengthened labor and environmental standards. The idea was first broached during George W. Bush’s administration and negotiated out under Barack Obama’s. The resulting 12-country trade pact would have solidified economic ties in an area responsible for roughly 40% of the world’s gross domestic product. It was, not to put too fine a point on it, a very big deal.
Had it been implemented, the Peterson Institute for International Economics estimates TPP would have “increased real incomes in the United States by $131 billion annually, or 0.5 percent of GDP, and U.S. exports by $357 billion or 9.1 percent over baseline projections.”
To put that in perspective, $131 billion is roughly the equivalent of the entire annual economic output of Nebraska.
Then America walked away … but that didn’t stop the deal from moving forward.
Without the U.S., the eleven remaining TPP signatories adopted the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership” (CPTPP). But an Asia-Pacific trade agreement without the United States is akin to The Beatles without Paul McCartney. Good but not … great.
Why?
Some of the Trump and Clinton concerns about TPP had merit, but they both overlooked the impetus behind bringing the participating countries together: China. The deal was put together primarily to give the countries involved other than the United States an alternative to further economic integration with the People’s Republic of China while creating a vehicle to indirectly pressure Beijing to adhere to stricter international standards.
Perversely, following America’s withdrawal from the TPP, several Asia-Pacific countries formed the China-centered “Regional Comprehensive Economic Partnership” (RCEP). Signed in November 2020, the RCEP is the world’s largest free trade agreement, involving an estimated 30 percent of global GDP.
No fewer than four of the RCEP’s fifteen signatories are counted among America’s staunchest global allies: Australia, Japan, New Zealand, and South Korea.
The Biden administration clearly must understand what’s at stake. During the 2020 presidential campaign, candidate Biden expressed a clear willingness to re-join TPP/CPTPP, but only on his terms. When asked outright during a Democratic debate, Biden responded: “I’d renegotiate. We make up 25% of the world’s economy… either China is going to write the rules of the road for the 21st century on trade or we are.”
He’s right. China writes the rules going forward or we do. No other economy is big enough to dictate the terms for future international trade to the rest of the world. U.S. leadership on this issue is largely benign, driven by a desire for higher global living standards and economic growth. China is focused on, well, China.
It remains to be seen how — and if — the Biden administration will address this issue. The Office of the U.S. Trade Representative’s 2021 Trade Policy Agenda report mentions the CPTPP only once in passing.
By comparison, the Obama-Biden administration’s 2016 Trade Policy Agenda devoted nearly twenty pages to TPP and concluded: “With TPP, we have a choice between two futures. The United States can lead on trade and use TPP to shape a better tomorrow. Or we can stand on the sidelines as the global economy leaves our workers and businesses behind.”
There’s a reason Secretary Clinton once called TPP the “gold standard” of trade agreements before she opposed it.
Given the disastrous developments in Afghanistan and pressing domestic issues claiming the Biden administration’s attention, TPP/CPTPP is likely to be given extremely short shrift. There’s only so much an administration can process and pursue politically at any given time. But as former Federal Reserve Chairman Alan Greenspan once asserted, “The evidence is overwhelmingly persuasive that the massive increase in world competition — a consequence of broadening trade flows — has fostered markedly higher standards of living for almost all countries who have participated in cross-border trade. I include most especially the United States.”
Trade works. The U.S. is a large free trade zone. As such, Americans benefit daily from being able to “import” goods and services tariff-free from across the country. Michigan residents, for example, are FAR better off exporting cars to the world and importing oranges from Florida — that is, trading — than having to produce absolutely everything themselves.
China’s national leadership understands how it benefits from trade with other countries. Why else would China have signed sixteen free trade agreements (FTAs) and more than 100 bilateral investment agreements? According to the U.S. Department of Commerce’s International Trade Administration, China is currently “negotiating or implementing an additional eight FTAs.”
The United States cannot afford to sit on the sidelines. The Biden administration should negotiate U.S. involvement in the CPTPP and work with America’s international allies to strengthen and enforce international standards.
Only America’s future is at stake.
James Carter served as Deputy Undersecretary of Labor under President George W. Bush and, in that capacity, as a member of the administration’s Trade Policy Review Group. Michael Meirovitz is a public affairs consultant who specializes in the health, energy, and infrastructure sectors.