Trump’s TPP move may aid China

The new US president’s desicion to ditch the wide-ranging Trans-Pacific Partnership trade deal could well give Beijing the chance to increase its influence over countries that account for 40 per cent of the global economy.

BEIJING // The US president Donald Trump’s decision to scrapping the Trans-Pacific Partnership (TPP), which had been proposed by the previous Obama administration as a new order for international trade, offers China an unexpected opportunity, experts say.

Envoys and economists in at least 20 countries are busy mapping the long-term implications of the move, but Beijing is set to benefit most.

For many companies, the world has suddenly changed and the future offers a combination of threats, opportunities, and mostly uncertainties.

Analysts expect a flood of discussions between governments in Asia, the Middle East and Europe who will be seeking an alternative to the TPP. China, the world’s second-biggest economy, is expected to play a major role in these negotiations, and will try to persuade states that its own alternative is superior.

After Mr Trump’s decision on Tuesday, the first response from economists, and a few politicians who spoke up, was that he had offered a golden ticket to China, which was already working on alternatives to the TPP. Beijing initially came up with what it called the Free Trade Area of the Asia Pacific (FTAAP). But it also expressed support for South-East Asian-backed Regional Comprehensive Economic Partnership (RCEP).

“Following the US withdrawal China can present itself as an attractive alternative providing it with a good bargaining position for advancing its own regional trade agreements. It is very likely that the RCEP-negotiations will gain momentum in the coming months,” Max J Zenglein, a research associate with the Mercator Institute of Chinese Studies in Berlin, tells The National.

China was not one of the signatories of the TPP and the United States did not seriously try to include it under Mr Obama. Chinese official media have often cautioned the Chinese government that the TPP was a US-centric ploy to contain China’s economic development, and it should keep away from it.

“It is now likely that a future major trade agreement in the Asia-Pacific will see the US excluded rather than China,” Mr Zenglein said, adding: “Given China’s economic clout it is a viable option to eventually include China in some form.”

The Chinese foreign ministry has already indicated that it is eager to fill the new vacuum created by Mr Trump’s decision, and take a leading role in the world of trade. The ministry said efforts to form the FTAAP should now be accelerated. All nations “should keep going down the path of open, inclusive, continuous” economic development, it said.

“If China is required to play that leadership role, then China will assume its responsibilities,” said Zhang Jun, the head of the Chinese foreign ministry’s international economic affairs department.

Without China or America, Asia-Pacific countries could try to create their own various trade deals, but some think that would not end well. Such a network of separate agreements would be “total mess”, said Wang Huiyao, president of the Center for China and Globalisation, a Beijing think tank.

But it may not be so easy for China to take advantage of Washington’s decision, which some analysts say is an abdication of responsibility by the US. Economists tell The National the state-controlled nature of Chinese business will make it difficult for Beijing to make the most of the new situation.

“There are no big winners with TPP’s death, but lots of losers, including the US, the other 11 members and even China and others,” says Scott Kennedy, the director of the project on Chinese business and political economy at the Washington-based Center for Strategic and International Studies.

For now, Beijing may find it hard to persuade enough countries to join any trade arrangement it proposes. “For China’s trade deals to be more significant, China would have to more thoroughly reduce market-access barriers to imports and investment. It has regularly trumpeted the rhetoric of free trade and globalisation, but its trade and investment barriers still extremely high,” Mr Kennedy says.

Christopher Balding, a professor of finance at the HSBC School of Business at Peking University in Shenzhen, says Beijing would struggle to come up with a widely acceptable alternative to TPP. “This would require China dropping its mercantilist [economic nationalism] mindset towards trade and giving other countries much wider access to its own market. Even with its initiatives like One Belt One Road, they are essentially exporting Chinese capital and Chinese labour to the benefit of Chinese firms,” he says.

A total of 11 countries had signed up to join the TPP although the US Congress had not yet approved it. They were Japan, Australia, New Zealand, Singapore, Malaysia and Vietnam, Canada, Mexico, Chile, Peru and Brunei. The TPP aimed to create a free-trade zone for about 40 per cent of the world’s economy. It would have cut tariffs and set rules for trade disputes, the environment and intellectual property, according to the Obama administration.

Trade ministries of countries keen to resist Beijing’s powerful influence over international trade are already looking for a suitable alternative. They include countries which had signed up for the TPP and now face serious challenges in re-adjusting their international trade strategies.

The Australian prime minister Malcolm Turnbull believes the TPP can be implemented even without the US. He has discussed the TPP’s future with the leaders of Japan, Singapore and New Zealand. Although the US leaving TPP was clearly “a big loss”, he is hopeful the trade deal will survive – and that even China could become a member. “Certainly there is potential for China to join the TPP,” Mr Turnbull says.

Still, there are signs that countries in Asia will be left with no option but to do fresh trade deals with China now that the US has pulled out of TPP. Ironically, some countries which found TPP difficult to swallow might seriously consider a Chinese alternative, analysts say. The TPP had prescribed tough standards on workers’ rights and environmental protection.

Several countries had complained that they were at a level of development where abiding by the high standards of western countries would hurt economic growth.

Alternative trade pacts suggested or supported by Beijing do not specify any standards concerning environment and labour relations. Participating countries are left to formulate their own standards instead of subscribing to an international benchmark. This may be more comfortable to many countries, analysts said.

China is particularly keen to ensure its leadership of the trade arena in Asia Pacific, which is the world’s fastest-growing region with nearly a billion middle-class consumers. It has already signed free-trade agreements (FTAs) with many of them, including Australia and the Philippines. The real challenge is for Japan, China’s main rival, which was looking forward to the influence of the US in the regional trade arena.

Can China pull off the miracle of replacing the US as leader and rule setting in the trading world? Mr Balding, for one, does not think so.

“One of the drivers of TPP was other countries’ interest in balancing China and the US, but absent the US, they have no real interest in a Chinese FTA,” he says.

Mr Zenglein says China does have the opportunity to push ahead its own global trade agenda. It is likely to expand the number of already existing ongoing bilateral as well as regional free trade agreements, he adds.

But replacing the TPP is less likely. “I think it is much too soon to tell. China talked glowingly about free trade but frankly remains one of the most protected large market in the world,” he says. “The Chinese version of free trade agreement is focused on diverting trade advantages to itself instead of creating free trade conditions.”

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