New world order: Trump, trade & the TPP

Australian Prime Minister Malcolm Turnbull sits down in the White House at the end of February for face-to-face talks with United States’ president Donald Trump.  Trade and trade-related issues will be at, or near, the top of the agenda -- as they should be.

North Korea and regional security will figure large but from an Australian perspective the priority of pushing forward with further steps to liberalise regional trade will provide a context for these important discussions.

Click image to zoom Tap image to zoom

Adding momentum to talks on trade and more broadly, the benefits of globalisation will be the fact such discussions will be taking place on the eve of the March 8 initialing of a revamped Trans-Pacific Partnership, now called the Comprehensive and Progressive Agreement for Trans-pacific Partnership (CPTPP).

"America’s regional allies are wrestling with a US administration which is, if not antagonistic to an ongoing process of trade liberalisation, at best agnostic.”

That innocent sounding rename symbolises the complexity of current – and critical – global trade deliberations.

The re-naming was one of conditions of Canada re-engaging in negotiations. Canadian Prime Minister Justin Trudeau wanted the words “comprehensive and progressive’’ included in the title to ward off domestic criticism of multilateral trading agreements more generally.

Canada is engaged in difficult negotiations with the US and Mexico on a revamped North America Free Trade Agreement (NAFTA). Trump decries NAFTA on the grounds it facilitates the export of American jobs.

The White House meeting – Turnbull’s first substantive session as prime minister with Trump on American soil apart from a brief encounter in New York last year – will provide Australia with the opportunity to push a free-trading agenda.

Turnbull will no doubt remind Trump open markets, involving as many participants as possible, are important guarantors of regional stability, especially at a moment when China is using its economic muscle to spread its power and influence across the Indo-Pacific.


Free trade as a hedge against a mercantilist China is not an unreasonable proposition. Arguably, Beijing is the big winner from an American decision to absent itself from the TPP, and thus a more comprehensive trading engagement in the region.

Trump’s decision to pull the US out of the TPP is, unequivocally, one of his more ill-advised given the benefits which would have flowed to participants - not the least America itself.

Robert Samuelson of The Washington Post cites Jeffrey Schott of the Peterson Institute who argued the TPP’s benefits to the US would raise US gross domestic product by $US131 billion over time or 0.5 percent of GDP.

“Those gains are now gone,’’ writes Samuelson.

From Australia’s viewpoint, the salvaging of the TPP is a notable achievement of the Turnbull government and Trade Minister Steve Ciobo.

Ciobo should be given credit for the leadership he and his departmental officers have playing in negotiations which will result in one of the world’s biggest trade agreements.

Virtually all tariffs will be eliminated for Australian exporters of goods and services in a new free trade zone.

The total combined gross domestic product of the CPTPP would be $US13.5 trillion or 13.4 per cent of global GDP.

While this is significantly less than the TPP’s combined $US28 trillion and 36 per cent of global GDP if the US had signed on, the agreement will match other super-sized such agreements.

NAFTA’s GDP totals about $US20 trillion; the European Union $US19 trillion; and Association of South East Asian Free Trade Area (AFTA) $US2.5 trillion.

All this helps put in to perspective the dimensions of a new trading pact which will come into effect as the 11 remaining participants ratify the agreement over the next year or two.

As well as Australia, those participants include Japan, Canada, Mexico, New Zealand, Malaysia, Peru, Singapore, Chile, Vietnam and Brunei.

Indonesia, South Korea, Thailand and even the UK have shown interest in the trading arrangement, possibly as future participants.

China’s eventual participation cannot be ruled out, too, as a step along the way towards the establishment of a Free Trade Area of Asia and the Pacific (FTAAP), one of the stated aims of regional trade diplomacy.


In the meantime, America’s regional allies are wrestling with a US administration which is, if not antagonistic to an ongoing process of trade liberalisation, at best agnostic.

In his Davos speech to the world’s peak globalising body Trump did not provide much encouragement to a belief he would moderate his America First views on trade.

“We cannot have free and open trade if some countries exploit the system at the expense of others,” he said. “We support free trade but it needs to be fair and it needs to be reciprocal because in the end unfair trade undermines us all.”

In Davos Trump opened the door slightly to a belief the US may reconsider its decision to withdraw from the TPP. However, it’s re-engagement would not be simple given the remaining participants have re-negotiated its terms and in the process watered down American-negotiated provisions on dispute settlements, copyright and intellectual property.

These components would all have to be re-litigated with no guarantee the agreement could be reached in a timely manner.

Where TPP is concerned, the dogs have barked and the caravan has moved on, it might be said. Or, as an American commentator put it, “the train has left the station.’’

In an interview with CNBC, Trump said he would “do TPP if we were able to make a substantially better deal”.

“The deal was terrible, the way it was structured was terrible,” he said. “If we did a substantially better deal, I would be open to TPP.”

Asked what aspects of the deal would need to change, Trump was non-committal, leaving an impression he did not understand the complexities of the agreement in the first place.


Giovanni Di Lieto, an expert in international trade law at Monash University writes in The Conversation the revived CPTPP represents a “substantial win for Australian farmers and service providers’’.

Describing the CPTPP as “more of an umbrella framework’’ Di Lieto noted the agreement would mean new trade agreements with Canada and Mexico and greater market access to Japan, Chile, Singapore, Malaysia, Vietnam and Brunei.

“It means a speedier process for reducing import barriers on key Australian products such as beef, lamb, seafood, cheese, wine and absorbent cotton,’’ he writes. “It also promises less competition for Australian services exports, encouraging other governments to look to use Australian services and reducing the regulation of state-owned enterprises.’’

He observes that new bilateral trade deals with Canada and Mexico could be especially beneficial to Australian exporters if they were able to take advantage of trade frictions with North America over NAFTA, or between the US and China.

Among important consequences of the CPTPP – perhaps the most important – is its re-negotiation signal that the countries of the Indo-Pacific have declared they will go-it-alone in negotiating new preferential trade deals without American involvement.

America’s withdrawal from active regional trade diplomacy is not least of several disappointing aspects of the new Trump foreign policy. This is not helped by the first steps in a simmering trade conflict with China.

The administration’s decision to impose tariffs on solar panels and washing machines may be the first shots in a trade war with China.

If other such steps are taken, Beijing would almost certainly retaliate by curbing imports of US-produced items like planes and motor cars, and agricultural commodities.

GM sold more cars in China last year than in America. Australian commodities exporters will be watching with interest.

Tony Walker is a former Political Editor of The Australian Financial Review. He is a vice chancellor’s fellow at La Trobe University.

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

editor's picks

31 Jan 2018

What the new TPP means for Asia’s shifting winds

Philipp Ivanov | Chief Executive Officer, Asia Society Australia

The TPP lives again but policymakers have much to do to repair the good name of trade.

14 Aug 2017

Trump the great trade disrupter

Tim Harcourt | Author, The Airport Economist

Australian exporters have serious concerns about the disruptive trade policies from the US.