Donald Trump has thrust China into the driver’s seat on world trade by killing off the TPP, which may relieve Australian workers and consumers.
President-elect Trump confirmed on Tuesday he will withdraw the US from Trans-Pacific Partnership negotiations on his first day in office (January 21, 2017).
“I am going to issue a notification of intent to withdraw from the Trans-Pacific Partnership — a potential disaster for our country,” he said in a video message.
“Instead we will negotiate fair, bilateral trade deals.”
Watch a quick summary here:
This almost certainly kills what would have been the world’s biggest free trade agreement. On Monday, Japanese Prime Minister Shinzo Abe said it is meaningless without the US.
The TPP would have united Australia, the USA, New Zealand, Canada, Japan, Mexico, Malaysia, Singapore, Brunei, Chile, Peru and Vietnam (but not China) in a massive trade zone covering almost 40 per cent of the global economy.
China now looks likely to fill the void, according to Murdoch University trade expert Dr Jeffrey Wilson.
Throughout the TPP negotiations, China pushed for an alternative agreement: the Regional Comprehensive Economic Partnership (RCEP).
In its current form, RCEP would cover China, Australia, New Zealand, Japan, South Korea, India, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. It would exclude North and South America.
Dr Wilson described it as the “Steven Bradbury of free trade agreements”, referring to the Australian Olympic ice skater who won gold in 2002 after most of his competitors crashed.
“China’s RCEP template is basically going to do the Steven Bradbury and is now the only game in town for moving towards that agreed goal,” Dr Wilson told The New Daily.
The RCEP will be far less controversial because it is likely to merely unify existing agreements, rather than create new trade law, the economist said.
“It’s not really freeing trade. It’s just integrating trade.”
At the APEC summit in Peru, Chinese president Xi Jinping seemed to signal his eagerness to take the lead.
“China will not shut its door to the outside world, but open more,” Xi said in a keynote address on Sunday.
“We are going to involve ourselves in economic globalisation and we back the FTAAP [the long-term goal of free trade in the Asia Pacific].”
Theoretically, the TPP can still go ahead. It would still apply to the remaining signatories if at least six ratify it by October 2017, so long as these six nations account for 85 per cent of the bloc’s combined GDP.
The TPP was controversial because of fears it would expose Australian workers to more foreign competition; allow foreign corporations to seek compensation for Australian laws that diminish their profits; and make pharmaceutical drugs more expensive by delaying generics.
Australian exporters were to be the big winners. They would have sold more sugar, beef, cheese, rice, iron ore, steel, copper and nickel.
‘Protect the fair go for workers’
Labour economist Dr Tim Harcourt told The New Daily that Mr Trump represents the “worst of all possible worlds” – protectionism and labour market deregulation – when what the US really needs is open trade coupled with protections for workers.
In a recent piece, the former chief economist of the Australian Trade Commission wrote that Australia is much better placed than the US to take advantage of Asian growth without hurting its workers.
“By contrast to the USA, the rise of Asia economically has been seen as an opportunity rather than a threat. But Australia also needs to remember that embracing open markets can only be done with well-developed labour market institutions and social safety nets to be successful,” he wrote.
“And this has been the historical Australian judgement of balancing right of the exporter-entrepreneur to have a go and with the right of the Australian worker to a fair go.
“That is why we are better placed in tackling the trade and jobs issue than President Trump is, especially if it’s all about tariffs on Chinese goods (that would be most likely counterproductive by inviting retaliation) and nothing is done about the decline of US labour market institutions.”