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TPP

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Making China Great Again

“Passing the TPP (Trans-Pacific Partnership) is as important to me as another aircraft carrier,” said former US defence secretary Ashton Carter two years ago, as the negotiations on the huge new free trade organisation were nearing completion.

Given that the United States already has twice as many aircraft carriers as all the rest of the world put together, that comment could be taken several ways, but Carter actually did mean that the TPP was strategically important in his eyes. As it was for ex-president Barack Obama, who saw the TPP as America’s main tool for containing China’s growing influence in Asia.

China, deliberately excluded from the 12-member club, saw it that way too. The official Hsinhua news agency regularly referred to the TPP as “the economic arm of the Obama administration’s geopolitical strategy to make sure that Washington rules supreme in the region.”

But the Obama administration is gone, and Donald Trump has just cut off that arm. “A great thing for the American worker, we just did,” Trump said after signing a document withdrawing US support for the TPP on Tuesday.

In fact, quitting the TPP is unlikely to do American workers much good economically, but it may not do them much harm either. Most analyses have concluded that the deal wouldn’t have had much effect either way on US wages and jobs – but leaving the TPP will certainly have a big impact on US power and influence in the world.

Xinhua was right: for Obama, the TPP was always more about the strategic rivalry with China than it was about economics. It still is, but Donald Trump’s electoral strategy has obliged him to declare war on free trade.

The voters that Trump targeted most heavily were working-class Americans who felt betrayed and abandoned as the well-paying jobs in manufacturing disappeared. However, there was no point in telling them that automation was destroying their jobs (which it is), because he could not plausibly promise to stop automation.

But if he claimed that the real problem was free trade, which allowed the Chinese and Mexicans and other sneaky foreigners to steal American jobs…well, he could certainly promise to stop that. He would build walls, cancel free-trade deals, even launch trade wars. It all sounded pretty credible, if you didn’t know that the vast majority of the lost jobs were really being stolen by robots.

So once he was in office, Trump was obliged to “unsign” the TPP deal, even though its main purpose, from Washington’s point of view, had been to perpetuate American economic and strategic dominance in Asia and freeze China out. In the eyes of Trump’s supporters (and maybe even in his own), he was slaying a dragon.

It looks different through the eyes of America’s erstwhile partners. As Singapore’s Prime Minister Lee Hsien Loong said in August, eleven other countries had to make big and politically painful concessions in return for access to the huge US market. “If at the end, waiting at the altar, the bride doesn’t arrive, I think that people are going to be very hurt.” And hurt feelings do matter, even in diplomatic circles.

The biggest cost to the United States is the fact that America’s defection from the TPP doesn’t automatically kill the notion of an Asian free-trade bloc. Australia is already talking about keeping the TPP going without the United States, but the likelier outcome is that the Asian members start trying to link up with China, Indonesia and even India in China’s proposed Regional Comprehensive Economic Partnership.

In that case, the United States could end up excluded from a free-trading bloc that includes half of the world economy. The dominant economy in that bloc would be China’s, so the main practical effect of Trump’s action would be to give a major boost to China’s power and influence in the world.

This pattern is likely to be duplicated in other areas where Trump is pledged to abandon long-standing US diplomatic commitments. It is already happening in the domain of climate change, where Trump’s decision to “unsign” the 2015 Paris treaty to curb global warming has opened the door to a leadership role for China instead.

At the World Economic Forum’s annual meeting in Davos earlier this month, China’s President Xi Jinping said that “all signatories must stick to” the Paris deal: “walking away” from the pact would endanger future generations. And while Trump is slashing US spending on climate change, Xi has pledged to invest $360 billion in renewable energy in the next four years to reduce China’s greenhouse gas emissions.

It’s easy to look good in the eyes of the rest of the world when the standard of comparison is Donald Trump’s administration. He is making China great again, even if that is not quite what he intended.
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To shorten to 725 words, omit paragraph 10. (“It looks…circles”)

The End of the Big Trade Deals

US president-elect Donald Trump announced on Monday that he will cancel the “Trans-Pacific Partnership” on his first day in office (20 January 2017). That will kill the TPP off for all 12 countries that agreed on it just over a year ago: as Japan’s Prime Minister Shinzo Abe said, the TPP would be meaningless without the involvement of the United States. But then, it was pretty meaningless even with American involvement.

Japan and the US were the only two really big economic players in the TPP deal. All ten other partners – Canada, Mexico, Peru and Chile on the eastern side of the Pacific, and Vietnam, Singapore, Brunei, Malaysia, Australia, and New Zealand on the western side – have a total population scarcely bigger than that of the United States alone.

It was really just an attempt to create a Pacific trading bloc that excluded China, thereby preserving what was left of the traditional US and Japanese domination of the region’s trade. For just that reason, the other big trading economies of the region, Indonesia, the Philippines and South Korea, stayed out of it. They preferred to play the giants off against one another.

Chinese influence and trade in South-East Asia may grow modestly as a result of the TPP’s cancellation, but no profound transfer of power or wealth will ensue. There were no big tariff cuts coming as a result of the TPP anyway, because actual taxes on international trade were already low. The real focus was on removing so-called “non-tariff barriers”.

The classic example of a non-tariff barrier was Japan’s attempt in the 1980s to ban imports of foreign-made skis on the grounds that Japanese snow was “unique”. A great deal of detailed haggling in the TPP talks went into breaking down thousands of similiar (and sometimes equally ridiculous) barriers to trade, but any country that wants to keep those gains can just incorporate the same deals into bilateral trade treaties with other ex-TPP members.

Not many jobs would have been gained or lost, in the US or elsewhere, if the TPP had gone into effect. The same is true for the US-European Union equivalent of the TPP, the Transatlantic Trade and Investment Partnership (TTIP), which was dead in the water even before Trump was elected. Donald Quixote is attacking windmills, not dragons, because the great free-trading spree of 1990-2008 has already come to an end.

It was not working-class American voters who killed TTIP. It was mainly European consumers who didn’t want hormone-laden American beef, US-grown GM foods, and chlorine-washed American chickens on their supermarket shelves.

To be fair, European left-wingers also played a role in mobilising opposition to the deal, by raising the (probably correct) suspicion that the “Investor-State Dispute Settlement” process (ISDS) in the proposed treaty was designed to cripple the ability of European goverments to impose high safety standards in health and environmental issues.

Most of the jobs that moved from developed to developing countries in the heyday of “globalisation” (or often, in the US case, just from Rust Belt states to Sun Belt states where wages were lower and unions were weak or non-existent) left long ago. In recent years eight American jobs have been lost to automation for every one that went abroad.

Most economic strategies, including both protectionism and free trade, conform to the law of diminishing returns. The same goes for political strategies, but they tend to lag even farther behind the realities. That’s why the old white working class in the US (and therefore Trump) still feel compelled to “fight “ free trade – and why even Hillary Clinton, once an enthusiastic advocate of the TPP, was ultimately obliged to turn against it .

When she finally made that U-turn, Reince Priebus, the chairman of the Republican National Committee, mocked her as “a case study in political expediency.” Now he has been appointed as President Trump’s chief of staff, and he will change his tune accordingly. But the cross-party consensus on this does not make it the right tune.

The truth is that these now aborted free-trade deals were merely the finishing touches on an edifice whose basic structure was completed more than a decade ago. Those who had devoted their lives to building that edifice simply kept on doing what they were good at doing, necessary or not. And all the while technological change was conspiring to make them as irrelevant as the people who so vehemently opposed them.

Cultural lag being what it is, the last battles in this long war – probably between the US and its NAFTA partners, Canada and Mexico, and between the US and China – are yet to be fought. We may be entering the next decade before the political process anywhere seriously engages with the reality of automation as the main destroyer of jobs. But reality always wins in the end.
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To shorten to 725 words, omit paragraphs 7 and 8. (“It was…issues”)