US Congressional leaders announced yesterday that they would not now consider ratifying the Trans-Pacific Partnership treaty (TPP), effectively ending the accord. The agreement, negotiated over a 7-year period between economies in Asia (not including China), Latin America, the United States and Canada — and which encompasses approximately 40% of the global economy — was primarily focused on reducing trade barriers and increasing and modernising regional economic integration. The agreement would have required approval by the United States to take effect — but was opposed by President-elect Trump. Citizens and coalition groups also strongly opposed the pact on concerns about privacy, the environment and labour protections. Supra-national investor-state arbitration panels were also an area of significant concern.
China set to take the lead in Asia-Pacific region trade
As the US has now chosen to turn away from leadership in trans-Pacific trade liberalization and modernization — China is poised to assume that leadership at the APEC Summit next week in Peru. With Chinese leader Xi Jinping set to travel to Peru, the Financial Times reports, “Li Baodong, [China’s] vice-foreign minister, said its’ own trans-Pacific trade plan, [called the Free Trade Area of the Asia Pacific (FTAAP)], [can now fill] the void. Chinese officials have previously sought to promote the proposal at APEC, only to encounter resistance from US officials who wanted to prioritise TPP negotiations.”
As Alvaro Vargas Llosa, a Senior Fellow of The Center on Global Prosperity at the Independent Institute details, “China already has free-trade agreements (FTAs) with nine of the twelve TPP signatories”, including New Zealand, Australia, Singapore, Chile and the ASEAN bloc. And those ties “go well beyond trade and investment”, he explains. “China also is building [via it’s “Belt and Road” initiative] new links to [its’] trading partners—physical links, including airports, roads and ports—providing everything from the concrete, steel and labor to the financing to pay for them.”
Mexico, Canada seizing the opportunity trade represents
According to World Bank figures, 58% of global GDP comes from trade. In North America, Mexico and Canada have seized the opportunity this activity represents and which now represents the bulk of their respective GDP. In Canada, trade represents 65% of GDP. While in Mexico, trade accounts for 73% of GDP. Trade currently represents approximately 28% of US GDP. These figues, Vargas Llosa argues, indicate a need for greater US trade engagement.
China set to become the Asia-Pacific region’s dominant economic power
Harold L. Sirkin, a senior partner at the Boston Consulting Group, wrote recently in Forbes about how China has evinced a determination to forge regional trade accords. Vargas Llosa believes China’s proactive trade efforts, coupled with a new absence in US interest in the same, may now see China become the Asia-Pacific region’s dominant economic power.