CPTPP: The Revival of the TPP

By: Soeun (Sarah) Lee

On March 8th, the same day Trump authorized tariffs on steel and aluminum, trade ministers of 11 Asian countries signed the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). It is a derivative trade deal from the Trans-Pacific Partnership (TPP), a hot topic of debate during the last presidential election. Although the United States abandoned the deal after Trump came into office, 11 countries decided to proceed. The CPTPP is expected to bring economic benefits to Asian countries despite recent U.S. protectionist economic measures.

TPP was a pact to strengthen economic ties by eliminating tariffs and harmonizing regulations between 12 trans-pacific nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam. The deal not only covered tariff measure, but also non-tariff measures, such as labor rights, environmental protection, and intellectual properties. With the U.S. included, TPP member states represented about 40% of the world economy or population of 800 million people.

However, in January 2017, Trump pulled the U.S. from the partnership, calling it a “ridiculous trade deal.” Then, the deal stalled for a while. Although there were concerns about the U.S. withdrawal, remaining countries decided to salvage the deal and signed it in Santiago, Chile on March 8, 2018, the same day the U.S. announced duties on steel and aluminum. While the deal covers only about 13.5% of the world economy without the U.S., it is still expected to significantly impact trade as the world observes the proposal of protectionist policies in the U.S. In fact, some countries such as South Korea, Thailand, Indonesia, Columbia, the United Kingdom, the Philippines and Taiwan, have shown interest in joining the CPTPP, which would expand the reach and impact of the agreement. The deal is “very timely because the world is witnessing an increase in protectionist measures, protectionist temptations,” Heraldo Munoz, foreign minister of Chile says. CPTPP remains very similar to TPP, but 22 provisions from TPP, which were priorities for the U.S., were suspended. It will be in effect after 60 days after six member countries ratify it.

Asian economies are the prospective beneficiaries of the CPTPP, especially developing countries such as Malaysia, Vietnam, and Singapore. According to a study by the Peterson Institute for International Economics (PIIE), these countries will experience greater than 2% economic growth by 2030. Furthermore, Australia is looking to increase its export by 30 billion Australian dollars (AUD), and its GDP by 18 billion AUD. Industry groups suggest the new TPP could boost Australian exports by 30 billion Australian dollars and increase real gross domestic product (GDP) by AU$18 billion by 2030. Despite little complaint from New Zealand’s trade minister about US absence, the CPTPP is highly regarded as the “most important trade agreement” in two decades.

On the other hand, the United States will be “the biggest loser” according to Jeffrey J. Schott from PIIE. The U.S. would not only have to give up 0.5% of GDP increase with the deal but also lose additional 2 billion U.S. dollars as trade between CPTPP member states will be favored. While America can consider rejoining, Trump’s policies against multilateral trade agreements suggest it is unlikely. In addition to economic loss, there might be a geopolitical loss as the U.S. influence may diminish in CPTPP member countries, as it will no longer have as dominant a power in the market.

The United States has tried to draw itself out of multilateral agreements to protect the American economy. However, these decisions seem to backfire as the country loses its economic as well as geopolitical power. While the U.S. and China in the midst of a supposed “trade war”, other countries in the region are reducing their reliance on the economic superpowers. Instead, they are bonding with each other. The U.S. influence in the region is likely to decline even more as its economic bargaining power decreases. Of course, the U.S. power will not disappear in one or two years. While China seems to be a defender of free trade, warning against Trump’s America First strategy, the United States is implementing tariff measures and avoiding trade agreements.

The Comprehensive and Progressive Trans-Pacific Partnership is much smaller than the original TPP. However, it still constitutes a market of 500 million people. From tariff measures to non-tariff measures, such as environmental regulations, labor rights, and intellectual properties, it seems to integrate the region’s economy deeper and deeper and open the door for freer trade. Overall, Asian economies seem to be finding a way to work around protectionist U.S. policies, whereas the U.S. continues to withdraw from the global market.

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