Cogito Ergo Non Serviam

US TPP Withdrawal Will Hand East-Asian Trade Rules to China

The Trans-Pacific Partnership [TPP] is a proposed trade agreement among the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. Clearly omitted from the deal was the People's Republic of China. The reason for that was simple; the TPP allows the US to write the trade rules for the bloc, and given composition of the membership, the bloc would be able to write the rules for Asian trade. Chinese membership would prevent that. President-Elect Donald Trump has threatened to keep a campaign promise to kill it off. As a result, China will be able to craft the rules of east Asian Trade.

Key to understanding the geopolitical importance of the TPP is an understanding of just how trade deals come to be. The larger the economy opening itself up to trade partners, the greater the influence. Simply put, access to a ten-trillion dollar market is more valuable than access to a trillion-dollar market, so the bigger economy's political leadership has a stronger negotiating position and has more bargaining chips. The extent to which the rules favor it depends in large part on how hard a bargain they wish to drive.

In the case of the TPP, the US is the largest market, and Japan is a distant second. Given that Japan's post-war economy and political leadership have flourished thanks to American-written rules, it is unlikely that the Japanese would kick up much fuss. Canada and Mexico already have a trade deal with the US. The other nations are too small to resist something the Americans are truly interested in.

However, Mr. Trump (and Bernie Sanders as well) have convinced a majority of the American working class that trade deals cost jobs. That has been the experience of every free trade deal. Some people work in industries that don't compete well, and those businesses fire people or simply go out of business. The economic argument says those people can get new and better jobs that the free trade creates. This presumes that labor inputs are interchangeable. The fact is that a metal lathe-operator is probably not going to lose his job on Monday and have a job as a software coder on Wednesday.

Nonetheless, trade deals are not responsible for much of the suffering of the working class (and of many white collar workers as well). Technology has rendered far more jobs obsolete than trade deals have moved abroad. Marketwatch says, "The number of jobs in the manufacturing sector has declined by about 5 million since 2000, falling from 17.3 million at the turn of the century to 12.3 million in 2015." Yet while those jobs were declining, production was rising, "Total production of U.S. factories peaked in 2007 before falling by 18% during the Great Recession according to the Federal Reserve's industrial production report. The manufacturing sector has nearly recovered from the recession; output in 2015 was within 3% of the 2007 level."

The output of the apparel industries is down more than 80% since the 1980s peak. Output of textile mills is down by half since 2000. Yet, the output of durable goods was at an all-time high in 2015, more than triple what it was in 1980 and double what it was 20 years earlier. The production of electronics, aerospace goods, motor vehicles and machinery are at or close to all-time highs. Output rising while jobs are down is explainable only by technological innovation.

But the perception that all those jobs left America for someplace else remains, and so America will withdraw from the TPP. That leaves China's rival grouping a clear field. Australia's Financial Review reports, "China was already strongly promoting its own version of a regional trade deal which included Australia but, just as deliberately, did not include the US -- the Regional Comprehensive Economic Partnership [RCEP].

The same paper notes, "Xi Jinping is also pushing for an even more inclusive regional trade deal, to be known as the Free Trade Area of the Asia Pacific (going by the even worse acronym of FTAAP). In another deliberate signal about bilateral deals compared to China's willingness to show global leadership, he said that 'close and exclusive arrangements' were not the right choice. Although this arrangement would include all countries of APEC it seems rather unlikely that the US, especially under Donald Trump, would be interested in joining into something led by China."

Withdrawal will leave the US on the outside looking in. Quite how that makes America great again is unclear.

© Copyright 2016 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.



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