News at Smith

Can the TPP Be Salvaged Without the U.S.?

Jan 25, 2017
World Class Faculty & Research

Comments

SMITH BRAIN TRUST – President Donald Trump signed an executive order this week to formally walk away from the Trans Pacific Partnership, in what looked like the final chapter for the 12-nation trade deal. 

The U.S., under former President Obama, was central to drafting the terms of the deal and access to the U.S. market was a key incentive for the Pacific Rim countries who signed on. Without the U.S., it seemed, the deal would collapse.  

Maybe not. Leaders of some of the 11 remaining nations now say they hope to carry on with the deal – with or without the United States. The big question is whether many of the pact's other nations, which had made important concessions, would stick with it once access to the important U.S. market was no longer part of the bargain.

The controversial trade and regulatory deal, some seven years in the making, "was never just about trade," says Anil K. Gupta, the Michael D. Dingman Chair in Strategy, Globalization and Entrepreneurship at the University of Maryland's Robert H. Smith School of Business. "It was about what terms are set when trade takes place among the TPP members."

And the terms, for TPP, include tough standards for environmental protections, labor and intellectual property. 

"If TPP had been ratified by all 12 nations, there would be not just free trade, but free trade on a bedrock of standards that they all agreed to," Gupta says. "That's what made it such a good deal."

And it's much of the reason, he says, why China wasn't part of it.

Now, however, officials from some TPP member countries are looking to invite Beijing to fill the void left by the U.S.'s exit or are looking to be included in plans for a wider Asian regional trade bloc that already includes China. They're looking to keep up momentum for multinational trade agreements, even as a tide of protectionist sentiment threatens global free trade, notably from the U.S. 

Trump has said he will pursue trade deals that put "America first," and said his economic policy will have a "buy American, hire Americans" focus. 

In formally withdrawing from the Trans Pacific Partnership, he said the United States will continue to pursue trade deals, but will favor bilateral arrangements, not multinational pacts like the TPP, which would have included markets comprising 40 percent of the world's GDP. Speaking Monday, Trump said one-on-one arrangements would allow the U.S. to threaten to terminate trade pacts "if somebody misbehaves." 

That kind of promise resonates with his supporters, but rankles his critics. 

"This is incredibly short-sighted on multiple fronts. Trump is so focused on China, his charges of China’s unfair trade practices, and our trade deficit with  China," says Gary Cohen, clinical professor and associate dean of the Office of Executive Programs. "He is missing the big picture. TPP would have helped level the playing field in Asia and spread U.S. trade to countries across Asia, while making the U.S. the economic powerhouse in the region Now TPP countries, including Australia, are suggesting China replace the U.S for TPP. "

China wasn't part of TPP, but the pact was meant to serve as the foundation for a wider pan-Pacific trading bloc.

China already is the heavyweight of another multinational trading bloc that includes seven of the signers of TPP. That partnership, the Regional Comprehensive Economic Partnership, or RCEP, includes 16 countries, but will take time and is likely at least five years from being ratified, Gupta says.

"By cancelling TPP, we are simply ceding economic dominance to China  in Asia," Cohen says. "They are the economic powerhouse."

GET SMITH BRAIN TRUST DELIVERED
TO YOUR INBOX EVERY WEEK

SUBSCRIBE NOW

About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty master's, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.