World Economy

China's gain? The collapse of the TPP could be bad for everyone

Abe will try to save TPP: Expert
Abe will try to save TPP: Expert

No one is sure what President-elect Donald Trump will do to simultaneously boost the American economy and the country's standing abroad, but one of his apparent moves will be to cancel the Trans-Pacific Partnership.

In the wake of Trump's election, that proposed free-trade bloc — which would include 12 countries accounting for more than a third of global trade — has been more or less pronounced dead.

Although extensive analysis on the terms of the deal had concluded that any of its economic benefits would likely be meager, proponents of the deal had insisted it was a key component of the American geopolitical "pivot" toward the Asia-Pacific region.

A copy of the local Chinese magazine Global People with a cover story that translates to 'Why did Trump win' is seen with a front cover portrait of US president-elect Donald Trump at a news stand in Shanghai on November 14, 2016.
Johannes Eisele | AFP | Getty Images

In other words, the TPP would have allowed the U.S. to further define labor, environmental and copyright rules of the global economy, and demonstrated the country's resolve and commitment to cooperation in a strategically important region. A failure to ratify the deal, the thinking goes, would therefore see China benefit at America's expense.

That reasoning has become commonly accepted in D.C. policy circles, and President Barack Obama himself argued the point in a May op-ed in The Washington Post.

"Increasing trade in this area of the world would be a boon to American businesses and American workers, and it would give us a leg up on our economic competitors, including one we hear a lot about on the campaign trail these days: China," the president wrote.

"The world has changed. The rules are changing with it. The United States, not countries like China, should write them," Obama added.

That sentiment was mirrored earlier this week by Japanese Prime Minister Shinzo Abe, who heads the second-largest economy in the would-be bloc, when he warned that a Beijing-backed deal could rise to the region's political forefront.

"There's no doubt that there would be a pivot to the Regional Comprehensive Economic Partnership if the TPP doesn't go forward," Abe told lawmakers on Tuesday, according to The Japan Times. "RCEP doesn't include the United States, leaving China the economy with the largest gross domestic product."

But these warnings may not be accurate, according to geopolitical and trade experts.

In fact, some said, Chinese economic expectations could actually suffer from the TPP's cancellation.

"Net net, the loss of TPP is going to be a loss for China," said Meredith Sumpter, who directs the Asia practice at the Eurasia Group. "There's this popular view that the TPP was meant to be exclusive of China, and that's simply not true: The U.S. wanted to get China engaged at a second (round of discussions), and the Chinese were quietly showing interest in that."

China is working toward two potential trade blocs that would have rivaled the TPP, but neither can match what the U.S.-backed agreement would have offered, Sumpter said. On the one hand, the Beijing-led Free Trade Area of the Asia Pacific is simply "aspirational," and would be "doubly" difficult to negotiate compared to the TPP, she said.

And the other deal proposed by China — the RCEP — has seen "lackluster" progress and only offers small tariff concessions, so "the actual net economic benefit for participating countries will be much lower" than what TPP would have offered, Sumpter said.

Countries may well turn to China's trade pacts, that is, but those moves are unlikely to significantly help China's to the U.S. detriment.

"I don't see any meaningful benefit for China from the U.S. rejection of TPP. There will be a good deal of diplomatic theater but it all gets forgotten by the next news cycle," said Derek Scissors, a scholar for the American Enterprise Institute. "The Chinese will talk about grand new deals but the only truly free trade agreement they've ever signed is with Taiwan, and that is still primarily political. The Chinese will certainly sign trade agreements, but they will do nothing to change the Asian economy."

Other experts have suggested that a failure of the TPP is simply immaterial to Beijing because its economic and soft-power plans depend on its own trade pacts and investment initiatives.

Writing for The National Interest, Independent Institute Senior Fellow Alvaro Vargas Llosa contended that the "TPP will do little, if anything, to slow the growth of China's economic and political power" because the trade pact "is irrelevant to China."

The real way that China could vault to increased regional power at the expense of Washington would be if the Trump administration goes beyond killing the TPP and starts levying stricter tariffs on other countries, experts said.

"TPP dying just leaves the U.S. in the same situation we are now. If the Trump administration goes further, for example by discriminating against trade with Asia, this would open to the door to a greater Chinese role," Scissors said, adding that even a protectionist White House would not be enough to fully push countries like Japan, India and Vietnam into Beijing's arms.

More generally, if the Trump administration were to implement economic policies that precipitate "a decoupling of Asian economies from the U.S.," then Asian partners could begin to hedge more toward Beijing, Sumpter said.