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China won’t wait for Trump

Donald Trump has repeated his pledge to abandon America’s commitment to the Trans-Pacific Partnership (TPP) trade agreement on “day one’’ of his presidency.

That means on January 20, 2017, US Inauguration Day, a regional trading agreement embracing nearly half of the global gross domestic product (GDP) will shed the world’s biggest economy - assuming Trump carries out his threat.

"[China] will now [take] a more-aggressive posture in pursuit of regional trade initiatives."
Tony Walker, Author & former editor

This would be a hugely significant step both practically and symbolically.

Trump’s action will not kill the TPP stone dead but it will rob the nascent pact of its cornerstone participant. Moreover, its raison d’etre from an American perspective was to give expression to a US pivot to Asia and provide a counterweight for China’s rise.

The question is: what next?

What can be predicted with near certainty is a vacuum created by the US pulling back from TPP will provide unpredictable trading and political opportunities for its rival in the Asia-Pacific.

Trade politics - inseparable from geo-politics more generally - will become a more important component of a regional mix.

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CHINA

Unsurprisingly, China is not waiting for Trump to lower the guillotine on the TPP before marking out its own territory as a leader of a self-interested regional free-trading, anti-protectionist push.

In this, we may well be seeing the beginning of a new phase in Chinese assertiveness, this time on terrain that might have been regarded as an American preserve - and a preserve of those of its western liberal allies, including Australia.

Beijing has been testing the territorial limits in the South China and East China seas. That assertiveness will now be accompanied by a more-aggressive posture in pursuit of regional trade initiatives.

The latter is not necessarily a bad thing from an Australian perspective.

America has been urging China to behave like a “responsible stakeholder’’ in a global economic and trading system. That wish may now be realised in discomforting ways that Washington had not anticipated.

The responsible stakeholder’ will take advantage of opportunities that present themselves to assume a more expansive trade leadership role consistent with its growing power and influence.

This is in accord with a much bolder foreign policy espoused by China’s leader Xi Jinping. Long gone are the days of Xi’s predecessor Deng Xiaoping’s dictum that China should bide its time and hide its intentions.

Global Times, Beijing’s conservative mouthpiece journal, quoted Xi telling fellow APEC leaders in Peru “we must energise trade and investment to drive growth, make free trade arrangements more open and inclusive and uphold the multilateral trading regime”.

THROUGH THE LOOKING GLASS

China will now seek to energise APEC-driven discussions on a Free Trade Agreement of the Asia-Pacific (FTAAP). It will no doubt take a leadership role in discussion on a Regional Comprehensive Economic Partnership (RCEP) involving 16 countries, including the ASEAN bloc, China, Australia, India, Japan, South Korea and New Zealand.

Xi will also advance his “One-Belt and One-Road’’ initiative to expand China’s trading and political influence among countries in its immediate neighborhood.

The China-initiated Asian Infrastructure Investment Bank will be used to bolster this overall strategy aimed at consolidating Beijing’s economic reach in what it perceives to be its own sphere of influence.

How odd, you could say, the leader of a country whose Communist Party membership numbers about 90 million should be espousing free-trade principles one might have expected to be coming from the leader of the free world.

Yet Trump’s hostility to free trade and open borders defined his presidential campaign.

What this tells you is that in an upside-down, Alice-in-Wonderland-environment America is on the defensive and China is asserting itself in ways that could not have been anticipated even as recently as 12 months ago.

Trumpism with its populist impulses, America-first dogmas and antagonism towards outsiders is a strange and unpredictable beast.

How all this will play out is anyone’s guess and will depend to an extent on Trump’s cabinet appointments. Will arch protectionists in his inner circle prevail? Or will free-market supply-siders win the day?

These policy battles (who will win and lose?) will provide early indicators of where a Trump administration will take us on the trade and economic front. These will be massively important policy debates.

HEGEMONS

Will America seek to hold back the forces of globalisation by placing its thumb on the scale? Or will it accept realities? This will take time to work itself out.

China will be hoping after early uncertainties things will settle down and a new Trump administration understands America’s own interests will not be served by trade frictions and possibly trade wars.

Trump’s pledge in his 100-day action plan - outlined in his Gettysburg speech - to name China a currency manipulator and thus subject to 45 per cent tariffs on its exports to the US would amount to a declaration of a trade war with all sorts of unpredictable consequences, not least impact on global growth.

The International Monetary Fund has estimated a surge in global protectionism would take down global growth by 1.5 per cent over several years and thus push the world toward recession.

REAL POLITIK

A pragmatic Beijing will not wish to antagonise a new administration for the simple reason that it is not in its interests to do so. After all, 18 per cent of China’s exports go to the US market.

The US, for its part, needs to recognise we are living in an era of interconnectedness that no amount of clumsy interference will reverse.

However, we cannot be sure Trump’s threats, enshrined in a simple – and simplistic - seven-point trade manifesto will not be invoked and thus provoke wider conflagrations on the trade front.

These seven bullet-points suggest - at the very least -  a confrontational approach to trade issues aimed largely at Beijing, including anti-dumping measures, complaints to the WTO about all manner of trading infractions, an aggressive counter-attack against China’s “theft” of American trade secrets, and instructions to label China a currency manipulator.

The Trump seven-point trade plan leaves no doubt Beijing is the target and TPP will be an early casualty, never mind that China itself is not a participant.

IMPLICATIONS

Let’s consider the implications of Trump’s animus towards TPP.

At the stroke of a pen America will be abandoning a multilateral trading pact that would have embraced 12 Pacific Rim countries, accounting for annual trade of $US30 trillion or 40 per cent of global GDP.

What Trump is proposing throws a spanner in the works of a trade initiative that has taken years to negotiate and involved intricate negotiations on highly complex market access issues as a model trade pact with, it has been argued by supporters, vast potential benefit for participants.

That is now being cast out the window by an American president apparently hostage to his campaign rhetoric and seemingly committed to a course of action that will inject fresh uncertainty into a rules-based trading system.

If the TPP was alone among trade initiatives under threat that would be one thing but a president-elect antagonistic to free trade and open borders has cast doubt on the operations of the World Trade Organisation itself and railed against a slew of trade agreements, including the North American Free Trade Agreement (NAFTA).

Under threat are negotiations on the completion of the Trans-Atlantic Trade and Investment Partnership.

Assuming Trump carries out his threat to kill the TPP, the TTIP will find itself an even more lonely relic, subject to nationalist buffeting on both sides of the Atlantic.

These are dog days for the world trading system which was under siege in any case, prey to rising nationalism and protectionism across the globe.

Obama’s own leadership on trade has been weak. Trump’s influence threatens to be destabililsing.

Tony Walker is an author and former Washington correspondent, international editor, Middle East editor and senior political editor at The Australian Financial Review and the Financial Times

This is the second item in a three-part series looking at a Trump environment. The third item will address what is next for the US and its allies. You can read the first item HERE.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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