When the United States withdrew from Trans Pacific Partnership (TPP), it forfeited strategic advantages and economic benefits that would likely have emerged through the mega trade deal and partnership with 11 other economies, according to findings presented in a new study.
TPP afforded clear economic advantages and a template for containing China and addressing its flouting of international trade rules, said co-lead author Ian Sheldon, a professor in the Department of Agricultural, Environmental, and Development Economics at The Ohio State University.
“TPP expanded beyond the remit of the WTO in an effort to deal with issues sensitive to China,” said Sheldon, Anderson Chair of Agricultural Marketing, Policy and Trade. “It had the clear potential to push China to play by the rules and stop stealing intellectual property, stop forcing American firms to hand over technology through joint ventures and put an end to China’s practice of sponsoring firms that are state owned enterprises.”
The study appears in the November 2018 issue of the University of Pennsylvania Journal of Law & Public Affairs.
Sheldon and co-author Professor Daniel C.K. Chow, of The Ohio State University Moritz College of Law, explain in detail the likely consequences from the termination of the nearly eight-year effort by the Obama administration to create the world’s largest free trade zone. While the article is not intended to be a lesson in what could have been, the study’s timeliness will not be lost on those trying to make sense of the current Administration’s attempts to reduce the U.S. trade deficit and force China to the bargaining table by imposing import tariffs on $200 billion of Chinese goods.
“We hope that current law and policymakers will read the article because it is not too late for the U.S. to reverse course and rejoin the TPP,” said Chow. “But time is a factor because if China first joins then China could make it much more difficult for the United States to reenter the TPP.”
Although President Trump announced that the withdrawal was justified because TPP did not align with, “…the policy of my Administration to represent the American people…and to create fair and economically beneficial trade deals that serve their interests…”*, the authors of the article argue that the Administration seems to have ignored or at least been unaware of the likely negative consequences of the decision.
“Trump wants a quick fix to the U.S. trade relationship with China, but it is a much more nuanced problem,” said Sheldon. “We have lost the opportunity to drive the trade playbook in the Asia-Pacific region.”
According to conclusions drawn from a large body of economic studies analyzed in the article, the U.S. plan to complete TPP without China was strategic. China would have been forced to choose between either rejecting TPP and losing the trade benefits that would have come with membership, or joining TPP and being subjected to tough new standards that addressed U.S. concerns regarding China’s most controversial trade practices.
“The strategy of the Obama Administration was to box China in through the use of the TPP and force China to make some tough choices,” said Chow. “It looked to be an effective approach and could have laid the foundation for a new way to limit China’s distortions of international trade.”
Excluding China from TPP led the country to initiate talks in 2012 for the Regional Comprehensive Economic Partnership (RCEP), a competing free trade agreement for Asia which when completed and in effect, will include 45% of the world’s population and 40% of world trade. RCEP does not include provisions on environmental protections, workers’ rights or technology transfer and gives China the pen to write the trade playbook for Asia for the twenty first century.
Another interesting insight of the article is that in addition to the negative economic consequences of pulling out of TPP, the U.S. has also alienated key allies through application of tariffs on steel imports from the European Union, Japan and Canada, undermining any multilateral pressure being placed on China.
“If President Trump manages to get China to play by the rules during the 90-day trade truce, that would be a good thing,” said Sheldon. “However, collective action on trade rules is stronger than unilateral or bilateral action, and remember, it took eight years and 12 countries to figure out TPP.”
*MEMORANDUM FOR THE UNITED STATES TRADE REPRESENTATIVE, SUBJECT: Withdrawal of the United States from the Trans-Pacific Partnership Negotiations and Agreement.
Professor Ian Sheldon
Professor Dan K. Chow