Populist protectionism might kill the TPP

By Dr Evgeny Postnikov. Lecturer in International Relations, University of Melbourne

When the next US President enters the White House, what will happen to American trade policy?

The question is critical in a time when the populist and protectionist sentiments are on the rise across the globe and the prospects of continuing American global leadership in the twenty-first century are uncertain. 

The answer given by the next President will matter not only for trade but shape the contours of US global engagement more broadly.     

As the world’s largest economy and the biggest market, the U.S. has been actively pursuing bilateral trade liberalisation through various free trade agreements (FTAs) beginning with NAFTA in the 1990s. 

This policy continued under the current president. Barack Obama initiated two mega-FTAs, the Transatlantic Trade and Investment Partnership (TTIP) with the EU and the Trans-Pacific Partnership (TPP) with eleven other nations in Asia-Pacific, including important players like Japan, Canada and Australia, which together make up 40 per cent of the global economy and account for roughly a third of the world trade. 

The TPP was signed in February this year and is awaiting ratification by the United States Congress and other national parliaments. Its significance goes beyond trade as it is also a central pillar of the American Pivot to Asia, a policy of engaging with the Asia-Pacific region whose growing political and economic importance is hard to ignore. 

The TPP is a crucial part of Obama’s legacy  

Both the TPP and TPIP agreements are new style FTAs concerned not only with removing the remaining (already historically low) trade barriers but with regulating the conduct of business across the borders by specifying the rules of the game. Today’s trade policy is largely about such regulatory measures as competition, intellectual property rights, consumer protections, labour and environmental standards and dispute resolution. 

The TPP embodies many American rules and, given its economic significance, will make the U.S. a standard-setter for global trade. Thus, the TPP is as much about trade liberalisation as it is about defining on whose terms global trade will be conducted in the twenty-first century. 

This is well understood by other important players like China who is currently negotiating a competing FTA known as the Regional Comprehensive Economic Partnership (RCEP) with its Asian-Pacific counterparts, including Australia but, predictably, excluding the U.S.      

The question of global rule-making in trade becomes even more pressing when one looks at the current state of the TTIP negotiations. Civil society and public opinion in Europe have turned against the agreement, criticising the secretive manner in which it has been negotiated, its purportedly lax consumer, labour and environmental protections and its dispute resolution mechanism said to favour corporate interests. 

Originally expected to be concluded in 2014, it is looking increasingly unlikely to be finalised any time soon, if at all. This means that transatlantic leadership in global trade is at stake, making the TPP the real cornerstone for projecting American interests on the global stage and heightening the salience of Obama’s Pivot to Asia.    

The TPP and TTIP might never come to fruition

The hope for TPP ratification during the lame duck session between the November election and the inauguration in January is dwindling and it is likely to become the task for the newly elected President. And here lies the danger. 

While Donald Trump’s open and loud opposition to free trade is well-known, Hillary Clinton also had to bow to populist pressures, radically departing from her previous stance on trade, saying she would reject the TPP out of fear of its job-killing effects. This will be unfortunate for several reasons. 

First, the signing of TPP is the result of hard won battle involving Obama overcoming the Congressional opposition over extending the Trade Promotion Authority allowing the President to negotiate FTAs without holding them hostage to re-negotiation. So if the new President reneges on the TPP, this would do damage to the achieved institutional balance between the Congress and the President over trade policy with a potential to derail future agreements. 

Second, the TPP’s importance for the American global leadership is hard to underestimate. 

While negotiated among twelve nations, some of which had a lot of influence over its final shape, the agreement’s rules largely favour American interests. Its beefed-up provisions on human rights, labour and the environment also embody Western norms and values continuing the tradition of linking trade deals with social issues as demanded by fair-trade movements in the developed world. 

Trade liberalisation is crucial for the global economy

By giving up on the TPP, the U.S. risks losing momentum for continuing trade liberalisation and missing on an opportunity to further project its rules, norms and values. The Pivot to Asia, a crucial part of Obama’s legacy, is also under threat.      

Most importantly, reneging on the TPP will send a strong signal to protectionist forces across the globe and empower them further. In a world still struggling with the consequences of the Great Recession and growing geopolitical tensions, resorting to protectionism is bad news. 

If there is one thing we learned from the Great Depression of the 1930s, it is that without global leadership the world economy can quickly descend the spiral of beggar-thy-neighbour policies leading to catastrophic and unintended consequences. Whoever becomes the next US president will need to be prudent and bear this in mind. 

Unfortunately, the wave of populism unleashed by this campaign may have dire consequences for the global economy as a whole.

Banner photo courtesy of Flickr/Humberto Acevedo


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