The TPP’s prosperity promises

Daniel Twining | October 5, 2015 9:00 pm JST

One way to make sense of the current world is to measure the progress of rules-based order versus coercion-based disorder. The latter category includes the collapse of state structures in the Middle East at the hands of violent extremists, Russia’s invasion of Ukraine and China’s territorial revisionism in maritime Asia. The former category includes the just-concluded Trans-Pacific Partnership agreement, which promises to liberalize trade and investment among 12 economies comprising 40% of global gross domestic product, 30% of global exports and 25% of global imports.

The forces of instability in the international system look backward — to a violent caliphate in the case of the Islamic State and to a “might makes right” world of spheres of influence in the case of Russia and China. By contrast, signatories to the TPP, with its complex rules on harmonizing regulatory standards, intellectual property laws and foreign investment regimes, look forward to an era of revitalized globalization that strengthens peace through prosperity. When it is enacted among the U.S., Japan, Canada, New Zealand, Australia, Singapore, Malaysia, Vietnam, Brunei, Mexico, Chile and Peru, it will be the most consequential trade pact in two decades, underscoring the primacy of economic leadership in the race for prosperity and security in the modern age.

Four views of TPP

The TPP will liberalize trade in goods and services, lift foreign investment restrictions and enhance regulatory transparency among its signatories. It will open up sensitive economic sectors such as automobiles and agriculture that to date have enjoyed protectionist barriers. It advances “new economy” priorities like freeing trade in digital products and reinforcing the open Internet among member states. It will enhance intellectual property rights in innovative industries like pharmaceuticals.

Economists at the Peterson Institute for International Economics forecast that TPP enactment will boost global gross domestic product by nearly $300 billion per year. This would be important progress given that global trade is actually contracting after many years of expanding faster than the world economy — a worrisome indicator after several decades of globalization-fueled growth.

For its signatories, the TPP will provide a positive external shock that heightens competitiveness, further opens the markets of key trading partners and benefits consumers through lower prices of traded goods and services. For countries including the U.S., in time it will increase the percentage of workers engaged in the export sector, where jobs pay more than in domestically oriented sectors of the economy. According to the U.S. Trade Representative, the U.S. exports $1.9 billion of goods to TPP members every day, a figure that will grow with the deal’s implementation.

The Peterson Institute estimates that by 2025 the TPP will enhance Japanese exports by $140 billion and U.S. exports by $123 billion, leading to annual GDP gains for these countries of nearly $100 billion and $80 billion. But the TPP will not only benefit the big economies; smaller countries like New Zealand, with its world-beating dairy sector, will enhance their access to the vast markets of the Pacific Rim.

Politics behind the economics

Perhaps as important as the economics is the domestic politics of the TPP. U.S. President Barack Obama is racing against the clock. Hillary Clinton, one of his possible successors, has her eye on the protectionist left wing of the Democratic Party, whose presidential nomination she hopes to secure. As such, she has backed off her support for a trade deal she once championed as secretary of state. The 90-day Congressional review period for any deal also bumps debate over the agreement into the U.S. presidential primary season, risking a populist backlash against the deal during an election year.

Most Democrats on Capitol Hill are likely to oppose the agreement, just as they opposed granting the president the negotiating authority to conclude it, requiring Obama to rely on the current Republican majority in Congress. This makes it a bipartisan cause, although the president himself naturally wants to “own” a successful agreement. As his principal negotiator once said privately, “Do you think we’re engaged in these negotiations so the next administration can take all the credit?”

Domestic politics drives other leaders’ support for the TPP. Japanese Prime Minister Shinzo Abe views it as a catalyst for his efforts to prime Japanese growth through Abenomics. In Canada, an election on Oct. 19 that the opposition may win puts Prime Minister Stephen Harper in the position of wanting to lock in TPP gains before his successors can scuttle it.

The TPP also has a geopolitical edge. For Obama, it is the centerpiece of a U.S. “pivot” to Asia that otherwise has been more rhetorical than real. Obama rightly understands that America’s continued leadership in Asia is a function not only of military might but of its ability to shape trans-Pacific institutions in ways that produce prosperity and peace.

The TPP will reinforce the U.S.-Japan alliance and tie new partners like Vietnam into association with America and its regional allies. The agreement does not try to contain China but does unite Washington with like-minded Asian powers in joint adherence to high standards of openness, transparency, and global norms.

This is particularly important in light of Beijing’s grand strategy to challenge Asia’s rule-bound order by claiming as its own the international waters of the South China Sea — which carry one-third of global trade — and to promote parallel Asian economic institutions that do not include the U.S. These include the Regional Comprehensive Economic Partnership, the Asian Infrastructure Investment Bank, the New Development Bank and the “One Belt, One Road” initiative to connect China through infrastructure development to markets in the Middle East and Europe.

The American TPP vision is not that it builds up an economic counterweight to China. Rather, in light of the slow progress of the Doha Round of global trade talks, the TPP could form a pillar of a more liberalized trade regime that inducts other economies over time. Its offer of openness to additional members should incentivize reforms to economies like China and India that may one day seek to join the club.

Already, South Korea, Taiwan, Thailand and the Philippines have expressed interest in joining, as has China. Ultimately, an enlarged TPP could form associations with other trade groupings, including a future Transatlantic Trade and Investment Partnership and the Pacific Alliance of free-market Latin American economies. In this way, it could inaugurate a pan-regional free trade order connecting Atlantic and Pacific economies.

According to economists Peter Petri and Michael Plummer, an enlarged TPP that evolves into a Free Trade Area of the Asia-Pacific could produce economic gains on the order of nearly $2 trillion. The U.S. Department of Commerce estimates there will be nearly 3 billion middle-class consumers across the Asia-Pacific region by 2030, making it the world’s largest combined market. The TPP is thus not a final destination but a launch pad for more ambitious economic arrangements to determine the future of the world’s most dynamic region.

Daniel Twining is senior fellow for Asia at the German Marshall Fund of the U.S. During the Clinton and Bush administrations, he served on the staff of the U.S. Trade Representative, the U.S. Senate and the U.S. Secretary of State.

Source: www.asia.nikkei.com