The failure of TPP and the future of Trump’s trade policies

The Transatlantic Trade and Investment Partnership, or TTiP, and Donald Trumps’s presidency have both been the topic of many recent debates. Trump’s anti-trade view has not been of the likes of many American to say the least.  With his recent much debated move on immigration policy Trump has lost much respect both in the eyes of the people and congress. With the United States’ exit from the TTiP, the future as trade organization are very uncertain. This raises questions like: what else has Donald Trump in store for us in the anti-trade department? And does will this indeed have the desired impact on the US internal job market? Answers to question like these will addressed the Perspective article of this month. We will discuss the most recent development and the possible future for the TTiP regarding the United States under Donald Trump’s presidency.

Trump’s view on free trade has always been clear, since the beginning of his campaign and to the Presidential Inauguration: America first. Thus, being faithful to his promises, one of the first executive orders that he signed after taking office a few weeks ago was the withdrawal of the USA from the discussions of a new trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and the United States, named TPP, short for Trans-Pacific Partnership. Despite the disengagement of the US, the other countries decided to move forward, especially Canada and Australia, which still see this treaty as an advantageous deal, yet the exit of the US is not beneficial for the survival of the negotiations. This presidential move was one of the many that president Trump is going to make in order to bring forward his populist, anti-trade and protectionist agenda, which will include scrapping more trade agreements like the Transatlantic Trade and Investment Pact (TTIP) and renegotiating the North American Free Trade Agreement (NAFTA), signed by President Clinton in 1994. This is all part of the president’s plan to reinforce the US internal job market and favour American products over foreign products, besides discouraging American companies from placing factories overseas and incentivize them to stay in the US, via fines and tax increases in the first case and via subsidies and tax reductions in the second case. These actions that The Donald made and intends to make will for sure bring him the support of the voters who elected him and boost the American job market in the short term, but the future does not look so bright. First, these measures will most likely bring down competition, causing a surge in prices due to the higher production costs that American companies face compared to factories abroad. Second, this will reduce the figure and status that the US has around world. These trade agreements that Trump intends to dishonour are not only strictly related to commerce, but are also a geopolitical and diplomatic tool. By following this strategy, Trump will most certainly help China to surpass the US as world economic leader, even though he claims that one of his objectives is to stop being exploited by them. One of the reasons for the TPP to be drafted was also to create an alliance who would contrast China in the Pacific Ocean. By making it weaker, China might step in the shoes of the US as the leading country of the pacific trade. Given that the TPP is likely to fail, and given that it was the only strong force that was stopping China from taking the lead in the Pacific trade market, Beijing will most certainly try, and is already trying, to propose a new trade agreement as an alternative to TPP, which would give China a much better result than before, given that they were totally excluded from the TPP.

Trump’s decision to exclude the U.S from the TTP have both an economic and strategic impact. From the perspective of economics, Trump seems to have underestimated the opportunity cost of existing a free trade agreement, namely the gains that the U.S could achieve  in areas in which they have competitive advantage, such as the digital industry.. From a strategic standpoint, he made the U.S lose their credibility of their commercial power in the whole region affected by free trade. Moreover, the implementation of protectionism will make the negotiation of bilateral agreements more complicated since it does not take into account that ex TTP partners might retaliate and implement the same policy against the US. Even if Trump managed to set these bilateral agreements, they would not have the same economic and mutually beneficial scope as the TTP. All in all, on a global scale, the rejection of TTP is going to either more opportunities to countries that were widely dependent on the U.S or cause a trade war. Even if in the short run the exit of the U.S from TTP might reap some benefits, in the long run the political view behind this will have the opposite consequences to the ones the Trump’s administration intended to create as well as deny the fundamental principles of growth, employment and opportunities for which the TTP was created.