World Economy

Global trade just had a 'one step forward, one step back' day

Key Points
  • The 11 remaining members of the Trans-Pacific Partnership agreement signed a revised pact on Thursday.
  • President Trump, who withdrew the U.S. from the TPP, signed off on steel and aluminum tariffs on the same day. But the proclamation said countries with a "security relationship" with the U.S. will be given the chance for exemption.
  • Australia is one country that likely qualified as having a "security relationship" with the U.S.
It is 'almost ironic' that TPP11 was signed today in Chile
It is 'almost ironic' that TPP11 was signed today in Chile

Thursday made for a somewhat uneven day for global trade after 11 countries signed a revised remaining Trans-Pacific Partnership countries inked a revised landmark Asia Pacific trade pact without the U.S., and on the same day U.S. President Donald Trump signed tariffs on iron and aluminum imports.

The revised trade agreement, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), cut tariffs between its member countries, although it suspended rules ramping up intellectual property protection of pharmaceuticals.

Trump withdrew the U.S. from the TPP last year although he subsequently told CNBC in January that he would consider joining the pact once more if it was "substantially better."

On Thursday, he signed off on tariffs of 25 percent and 10 percent on steel and aluminum, respectively.

"It's one step forward, one step back for the trading system overall today," said Heath Baker, chief policy officer of the Export Council of Australia, an industry body.

On the whole, Baker remained positive that the trade agreement was a step in the right direction.

"The TPP 11 is just the first step. Bringing more countries on board to the TPP will grow that value," he said, pointing to how the agreement would set rules for the region's trading system in the future.

The CPTPP will generate $147 billion in income, according to simulations conducted by the Peterson Institute for International Economics. In comparison, the original TPP would have resulted in $492 billion in global income benefits, the think tank said.

'Tariff roulette'

Meanwhile, the steel and aluminum tariffs were seen by some as less severe than previously expected, as Canada and Mexico were exempt. The proclamation signed by Trump also noted that countries with a "security relationship" with the U.S. will be given the chance to make their case for exemption.

'Nothing's ever decided' until it comes to force with the US administration
'Nothing's ever decided' until it comes to force with the US administration

But the nature of that potential exemption was "less clear," one expert told CNBC.

"Think of it almost perhaps as a tariff roulette. You spin the wheel and you see whether maybe there's something else you can do to persuade the U.S. not to impose steel with respect to goods from your country," said Miriam Sapiro, a former deputy and acting U.S. trade representative.

Still, countries such as Australia would likely qualify under that criteria to make its case for exemption, given its military ties with the U.S., said Ray Attrill, head of FX strategy at National Australia Bank, in a note.

The U.S. also runs a trade surplus with Australia, Attrill pointed out. In 2017, that figure came in at $14.55 billion, according to U.S. census data.

"If you're open to being sympathetic to your close allies when it comes to national security, it would be hard to imagine a scenario where Australia wouldn't be exempted from that tariff," Baker said.

But he also noted that it seemed as though "nothing's ever decided until it actually comes into force" with the current U.S. administration.

And while the fact that the U.S. should have a stable and secure supply of steel was something people understood, tariffs — which angered allies and could result in retaliatory actions from trading partners — were not the right tool, said Sapiro, who is currently the managing director of public relations firm Sard Verbinnen & Co.

"Using this particular tool, these tariffs, to try to address concerns about Chinese capacity and underselling just doesn't make sense," she added.