Challenging Trump, US allies unite on trade deal

Challenging Trump, US allies unite on trade deal

Challenging Trump, US allies unite on trade deal

A trade pact originally conceived by the United States to counter China's growing economic might in Asia now has a new target: President Donald Trump's embrace of protectionism.

A group of 11 nations - including major US allies such as Japan, Canada and Australia - signed a broad trade deal on Thursday in Chile's capital, Santiago, that challenges Trump's view of trade as a zero-sum game filled with winners and losers.

Covering 500 million people on either side of the Pacific Ocean, the pact represents a new vision for global trade as the US imposes steel and aluminium tariffs on even its closest friends.

Trump withdrew the US from an earlier version of the agreement, then known as the Trans-Pacific Partnership (TPP), a year ago as one of his first acts in office. The resuscitated deal is undeniably weaker without the participation of the world's biggest economy, but it serves as a powerful sign of how countries that have previously counted on US leadership are now forging ahead without it.

"Globally, there has been an increasing level of uncertainty, given the adoption of policies and measures by some key players that question the principles that have contributed to generating prosperity for our peoples," President Michelle Bachelet of Chile said in a speech shortly before the pact was signed. "We need to stay on the course of globalisation, yet learning from our past mistakes."

In its original incarnation as the TPP, the accord was conceived as a counterweight to China, whose vast economy was drawing other Asian countries closer despite its state-driven model and steep trade barriers. Not only does the pact lower trade barriers, it could also prod Beijing to make changes to enjoy the same benefits.

When President Barack Obama was advocating the deal, he said that "America should call the shots" instead of China. Now, signatories are opening the door for China to join.

Heraldo Muñoz, Chile's foreign minister, told reporters that Chinese officials had been weighing the possibility of signing on. "This will be open to anyone who accepts its components," Muñoz said. "It's not an agreement against anyone. It's in favour of open trade."

On Thursday, Trump went in the opposite direction, announcing tariffs on steel aluminium imports to the United States. He said that Canada and Mexico were being exempted for now, and that allies such as Australia could later be excluded. His order could affect Brazil, China, Germany, Japan, South Korea and Turkey, though he said he would have leeway to add or take countries off the list as he sees fit.

The US has "gone from being a leader to actually being the No 1 antagonist and No 1 source of fear," on trade, said Jeffrey Wilson, head of research at Perth US-Asia Center at the University of Western Australia. "If you're a trade policymaker in Asia, your No 1 fear is that Trump is going to take a swing at you." He added that such fears could prompt countries, however reluctantly, to tether themselves more closely to China. "The US is really delivering the region to China at the moment," Wilson said.

The new agreement - known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership - drops tariffs drastically and establishes sweeping new trade rules in markets that represent about a seventh of the world's economy. It opens more markets to free trade in agricultural products and digital services around the region. While US beef faces 38.5% tariffs in Japan, for example, beef from Australia, New Zealand and Canada will not.

Once it goes into effect, the agreement is expected to generate an additional $147 billion in global income, according to an analysis by the Peterson Institute for International Economics. Its backers say it also bolsters protections for intellectual property and includes language that could prod members to improve labour conditions.

Other members include Mexico, Vietnam, New Zealand, Chile, Malaysia, Peru, Singapore and Brunei. The deal will go into effect as soon as the legislative bodies of at least three signers ratify it. How long that will take is unclear.

China, which has discussed forming its own regional trade pact, has been more positive about the new deal since the US pulled out. It sent a high-level delegation a year ago to Viña del Mar, Chile, where the pact's members sought to regroup after the US' withdrawal. Experts said China could feel the pull if still more countries joined. The pact is also built around fostering trade in sophisticated manufactured goods and high-tech products, and China now produces many of those in abundance.

"It's hard to ignore rules that everyone else is agreeing to, and they will probably look carefully at these rules," said Wendy Cutler, a former US trade negotiator who worked on the Trans-Pacific Partnership and is now managing director of the Washington office of the Asia Society Policy Institute.

Wang Yi, China's foreign minister, said on Thursday that the government hoped free-trade agreements in the region would play "a constructive role in their respective fields in resisting trade protectionism and building an open world economy."

Shifting waters

The new version of the TPP does not pack the same punch as the earlier iteration. With the US,
the agreement would have represented 40% of the world's economy, giving its provisions added heft. Still, the deal could appeal to companies trying to navigate the shifting trade waters.

"In a world that is so upside-down, especially for companies, companies will need to seek out growth and stability wherever they can," said Deborah Elms, founder and executive director of the Asian Trade Center, a consulting firm in Singapore. "And that stability does not appear to be coming from the United States, where policy seems to shift at a moment's notice."

Japan, which has the largest economy among the remaining trade partners and played a leadership role in keeping the coalition of 11 countries together, is still holding out hopes that the US might return to the pact, under either Trump or a subsequent administration.

"We think the US should come back, and we'll say, 'Please do come back,'" said Ichiro Fujisaki, a former Japanese ambassador to Washington. "It may sound a little impertinent, but the US has taken many different positions on the economy or security."

The Trump administration has recently signalled that it is open to re-entering the Trans-Pacific Partnership. In an interview at the World Economic Forum earlier this year, Trump said, "If we did a substantially better deal, I would be open to TPP."

Heft could come from others. The Peterson Institute for International Economics in Washington estimates that if five other places - Indonesia, South Korea, the Philippines, Taiwan and Thailand - joined the partnership, the annual increase to global income would total $449 billion by 2030, almost as much as it would have been if the US were included.

In the deal signed on Thursday, only 22 of more than 600 original provisions have been suspended, relating to intellectual property protection and a grab bag of other issues, several of which had been pushed by the US. Kazuyoshi Umemoto, Japan's chief negotiator for the partnership, said that if the US decided to re-enter
the deal, those provisions could be reinstated.

"Trump won't last forever," said Patricio Navia, a political scientist at New York University. "Countries will return to a path toward globalisation and this sends a beacon of hope."