Trump’s Pacific Trade Tear
Donald Trump was having a successful Pacific sojourn this week, and then came Friday’s speech to the Asia Pacific Economic Cooperation confab in Vietnam. This was supposed to lay out his vision for a free and open Indo-Pacific, but instead he went on a tear against multilateral trade agreements. This dismays America’s friends, gives a new opening to China, and threatens the rules-based order Mr. Trump says he wants. The biggest victim will be the United States.
“I will make bilateral trade agreements with any Indo-Pacific nation that wants to be our partner and that will abide by the principles of fair and reciprocal trade,” the President said. “What we will no longer do is enter into large agreements that tie our hands, surrender our sovereignty, and make meaningful enforcement practically impossible.”
Mr. Trump is wrong that multilateral agreements have allowed other countries to “take advantage of” the U.S. The multilateral trading system the U.S. created after World War II has built foreign markets for American exports, which now represent 12.3% of U.S. GDP and an estimated 11.3 million jobs. Mr. Trump is also wrong to believe he can force Asian nations to go along with his plan. They are already on the way to proving that his decision in January to pull out of the Trans-Pacific Partnership (TPP) trade pact was a strategic and economic mistake.
Japan’s reaction shows why abandoning TPP will backfire on Americans. Shinzo Abe needs the deal to underpin his economic reform and strengthen the country’s alliance with the U.S. The Japanese Prime Minister is resisting Mr. Trump’s requests for a bilateral deal because he wants to coax the U.S. back into TPP.
In July Japan used domestic trade law to impose a 50% tariff on U.S. frozen beef. But Australian beef is taxed at 27.5% because Tokyo and Canberra locked in their TPP concessions two years ago. Japan has also signed a deal with the European Union to open its market to farm products. It is working on a similar deal with Canada, whose pork producers are taking market share from American competitors.
Meanwhile, China is pushing its own trade group, the Regional Comprehensive Economic Partnership, which includes 16 nations accounting for 39% of global GDP. While that deal isn’t as ambitious in promoting free trade as TPP, it bolsters China’s economic influence. The irony is that by leaving TPP Mr. Trump is letting China extend its mercantilism, which promotes its “national champions,” more broadly at the expense of the U.S.
The U.S. simply doesn’t have the economic leverage to force Asian nations to make big concessions in bilateral agreements. Perhaps it did in the 1980s, when Mr. Trump’s understanding of world trade seems to have stopped. Then the U.S. was the destination market for the bulk of Asia’s production. Countries have many other destinations for goods and services, and companies are focused on trade within the rapidly growing region. Complex supply chains have made bilateral trade deals less important, and mulilateral rules often trump bilateral trade terms.
As the U.S. is left behind, the biggest American losers will be the President’s supporters in the Midwest and farm states. TPP remains America’s best chance to benefit from Asia’s growth, and the deal addresses many of the President’s complaints about intellectual property theft, predatory industrial policy and enforcement of rules. America’s friends at APEC were disappointed by Friday’s speech, but their commitment to multilateral trade can force Mr. Trump or his successor to change course.
Appeared in the November 11, 2017, print edition.