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Trump dismisses TPP but may have missed opportunity in China trade skirmish

Key Points
  • Japanese Prime Minister Shinzo Abe, visiting Trump at Mar-a-Lago, was expected to encourage the U.S. to reconsider joining the Trans-Pacific Partnership, while Trump instead pushed a bilateral trade agreement with Japan.
  • Trump late Tuesday tweeted that Japan and South Korea want the U.S. to return to TPP but he says it's not a good deal for America.
  • The talks are also expected to be dominated by North Korea, but there should be some comment on trade at their conclusion late Wednesday.
  • White House economic advisor Larry Kudlow on Tuesday said nothing concrete has occurred and the idea of the U.S. return to TPP is more of a thought than a policy at this point.
President Donald Trump (L) greets Japanese Prime Minister Shinzo Abe as he arrives at the White House on February 10, 2017 in Washington, DC.
Mario Tama | Getty Images

President Donald Trump, in a tweet, dismissed the idea of rejoining the TPP, a trade pact that experts say is one way to take on China's unfair trade practices and secure America's economic role in Asia.

As Trump skirmishes with China on trade, Japan has been inviting him to find a different way to level the playing field — by rejoining the Trans-Pacific Partnership with 11 nations around the Pacific Rim. China is not one of them.

Trump instead was expected to push for a bilateral trade agreement with Prime Minister Shinzo Abe, who is visiting Trump at Mar-a-Lago this week.

After a day of meetings, the president tweeted late Tuesday night that while Japan and South Korea, which is not yet a TPP member, would like the U.S. to rejoin TPP, it is not a good deal for America.

Shortly after taking office, Trump withdrew the U.S. from the TPP, which was opposed by both presidential candidates during the election. It was criticized because it could add to the trade deficit and send American jobs overseas.

Trump last week asked his advisors to look into whether the U.S. could now get a better deal in TPP, but White House economic advisor Larry Kudlow on Tuesday said nothing concrete has occurred, and the idea of the U.S.' return is more of a thought than a policy at this point. Trump's tweet also makes it more unlikely the U.S. will try to re-engage.

VIDEO1:3801:38
President Trump reconsiders TPP

Trade experts said it's unlikely that either Abe or Trump will get their way in this week's talks, but there could be vague agreement. The president will not embrace TPP, and Abe is not expected to be able to wholeheartedly support a separate free trade agreement with the U.S.

Trump also has threatened Japan with steel and aluminum tariffs that he has waived for other countries.

"Both Abe and Trump need to come out of this summit and say they got something on trade. Framework is the word everyone is using," said Sheila Smith, senior fellow for Japan studies at the Council on Foreign Relations. "The rhetoric is going to be a compromise, and both sides can come out and say, 'We won.'"

Tom Block, Washington policy strategist at Fundstrat, said he expects Japan to get exemptions from the steel and aluminum tariffs. As for TPP, "I think they're going to say they talked about it. It came so far out of left field. It was envisioned to be part of a counterbalance to growing China. It made sense then. It makes sense now, but I think it's going to be a hard sell to the Trump base," he said.

There are many hurdles to the U.S. returning to TPP, but America may find its farmers and businesses are at a disadvantage because they are not in it.

Kim Wallace, managing director at Eurasia Group, said the member countries would find it difficult to meet Trump's demands to improve TPP in America's favor.

"It was a missed opportunity, not only economically but geopolitically. That's part of the reason for developing and implementing trade blocs. You play really nicely with those in your sandbox, and with others not so much. When you look at growth trajectories in both terms of economics and demographics, it's been known for at least a decade that this is one region you had to have a foothold in," he said.

New Zealand, an early member of TPP, said the U.S. cannot simply jump back into the agreement, though it would be welcome. New Zealand Prime Minister Jacinda Ardern told Reuters on Tuesday that she could see the U.S. rejoining but not without renegotiation, and that would have to be approved by all 11 countries. Other members include Canada, Australia, Mexico, Malaysia, Singapore, Chile, Vietnam, Peru and Brunei.

"Trump is correct that the TPP would be a big boost to U.S. agriculture. But we have seen this a few times and are not too optimistic on its chances of happening in the short run," said Daniel Clifton, head of policy research at Strategas Research. "Trump's real focus is on securing a bilateral trade agreement with Japan and to rebuild TPP from the bottom up rather than the top down."

The U.S. is discussing the TPP now that a trade skirmish with China looks like it could become a battle of wills. The U.S. has said it would put tariffs on $50 billion in Chinese goods, and China responded by pledging to put tariffs on U.S. goods and agriculture. Trump has also threatened to up the ante by putting tariffs on another $100 billion of Chinese goods, and China says it will respond.

"The only reason the Administration even dipped their toe in these TPP waters was because it is a full-throated anti-China move. The entire strategic point of the TPP is to fortify an economic ring fence … around China," wrote Chris Krueger, Cowen policy analyst.

The payoffs from re-engaging in TPP could be important to the Trump administration, as it works with Asian allies on North Korea's nuclear ambitions.

"It embeds the United States in the future of Asia. It anchors us. It tethers us. It's a strong commitment in shaping the economic future of the region," Smith said.

The U.S. is tangling with China on one front and is trying to resolve the renegotiation of the North American Free Trade Agreement with Canada and Mexico before the Mexican election in July.

"Once NAFTA is done, I do think there is going to be attention paid maybe not just to Japan but to the region," said Smith. TPP was a way to correct some of the issues that were not working or outdated in NAFTA, she added.

Domestic politics could continue to be a problem for the U.S. consideration of TPP, and there are wild cards, including how the administration prioritizes it and what Congress might demand of a deal. "If you have a change in leadership in one or both houses of Congress, they may not want a new trade deal until after the next presidential election," said Jeffery Schott, senior fellow on international trade at Peterson Institute for International Economics.

"The other countries have demonstrated they are going forward without the U.S. There is this growing discrimination against U.S. farmers and exporters in the region," he said. "Certainly it will deepen once TPP 11 goes into force."

The road back to TPP could be tricky. "Near term there's not much that can be done, because the agreement isn't in force. The prospect for session negotiations will really only become serious next year. But the other countries are unlikely to make major revisions in the existing text that was signed in March in Chile," said Schott.

Schott said it's not clear what Trump meant by a better deal or whether one is possible. "Bigger and better would be more countries participating, which means there would be a bigger economic payoff and that would likely occur once the agreement enters into force and other countries join. Already there's consideration in South Korea, Taiwan, Colombia and the United Kingdom, among others," he said.

Wallace said it would be a "long slog" if the U.S. tried to rejoin but it's not likely.

"The biggest downside of that is time, in my view, given what's going on in the region, and what has been going on in the last 15 years in the way of economic growth in the region," said Wallace. "It is possible the TPP countries look and say we're comfortable with our trade relationship once the U.S. figures out what relationship it wants to have."

WATCH: Abe and Trump to discuss TPP and North Korea
VIDEO4:5104:51
Japan concerned US will abandon them in N. Korea talks: Expert