How Trump will redefine us trade with Europe and Asia

After the US election, the current US free trade plans with the EU and Asia are suspended. New and revised deals must fulfill the Trump administration’s requirements.

President Obama initiated the Transatlantic Trade and Investment Partnership (TTIP) talks in 2013. However, the TTIP was not Washington’s first priority but began two years after President Obama’s “pivot to Asia.” The latter was first defined by then-Secretary of State Hillary Clinton, and talks for the Trans-Pacific Partnership (TPP).

During the past two years, EU federalists have urged Brussels to quickly conclude the TTIP talks. However, contentious issues such as investor-state dispute settlement (ISDS) and the extraordinary secrecy have undermined a deal.

And if President-elect Donald Trump sticks to his pledge – as he has now promised to do – the TTIP is dead.

Struggle for transatlantic free trade

During his campaign, Trump threatened not only to re-negotiate or reject the North American Treaty Organization (NATO), but to pull the U.S. out of free trade agreements. Of course, election rhetoric is one thing, and incumbency another. Nevertheless, Trump is neither Obama nor George W. Bush. He may honor the substance of his pledges.

Trump considers the North American Free Trade Agreement (NAFTA) a disaster to ordinary Americans. As a result, he would like to pull U.S. out of NAFTA, perhaps even the World Trade Organization (WTO). Is that possible?

Trump relies on NAFTA’s Article 2205, which would allow the US to “withdraw from this agreement six months," while the deal would remain in force for the remaining parties. The article, in turn, relies on Title 2135 of the U.S. Code on trade agreement termination and withdrawal authority, which empowers the president "at any time terminate, in whole or in part, any proclamation made under this chapter.”

In the impending talks, Trump could use the threat of termination and withdrawal.

Indeed, Trump’s strategic objectives for his first 100 days include free trade that he calls “good as long as it is fair trade.” He believes that U.S. jobs have been lost because of trade deals that incentivized American companies to make things abroad, where environmental and labor protections are minimal and wages are low. Trump pledges to “reverse decades of policies that have pushed jobs out of our country.”

In this view, in their current forms, the TTIP and the TPP are history.

 

Struggle for free trade in Asia Pacific

Historically, the Trans-Pacific Partnership (TPP) originates from a 2005 free trade agreement among Brunei, Chile, New Zealand and Singapore. Since 2010, Washington has led talks for a significantly expanded FTA, which would be a “high-standard, broad-based regional pact” that reflects U.S. alliances in Asia and Latin America – but excludes China.

Since the US election, some of Washington’s TPP partners have sought to push a revised TPP without the US before the President Trump can tear up the agreement. Tokyo has a key role in the effort. Despite three lost decades and three years of massive monetary gamble, Japan lingers amid deflation and soaring sovereign debt. So Prime Minister Shinzo Abe seeks to save a version of TPP, a bilateral free trade deal with the US, or join the China-led talks for a Regional Comprehensive Economic Partnership (RCEP) among the ASEAN member states, and their FTA partners (Australia, China, India, Japan, Korea and New Zealand).

In turn, China sees the TPP as the collateral damage of the Obama failures and the Trump triumph. After the US election, Beijing is also seeking support for an Asia-Pacific free trade area at the Asia-Pacific Economic Cooperation (APEC) summit President Xi Jinping will attend in Peru next week. This free trade proposal is an incarnation of a previous U.S. plan.

In 2006, C. Fred Bergsten, then chief of an influential U.S. think-tank, spoke for the Free Trade Area of the Asia Pacific (FTAAP), which would represent the largest single liberalization in history. Oddly enough, the Obama Administration rejected the inclusive FTAAP for the exclusive TPP. China’s view is that the FTAAP, which includes both the U.S. and China, would better serve as a foundation for other regional talks.

Trump trade scenarios

It is high time for Brussels to wake up to the realities. Today, there are three Trump trade scenarios that pertain to the NAFTA in Americas, the TTIP with Europe and the TPP in Asia.

Recently, Jean-Claude Juncker and Donald Tusk invited Trump to a EU-US summit in a desperate attempt to re-ignite the TTIP talks. In this revised TTIP scenario, Brussels would redefine the current terms of the deal, which would be even less acceptable with most of the EU, but possibly acceptable to the US.

In the compromise scenario, Trump will not quash the proposed FTAs, but will redefine their basic terms, which Canada and Mexico, the EU and Asia Pacific might ultimately consider a lesser evil than full termination.

In the withdrawal scenario, Trump will push for termination, which would effectively bury the proposed FTAs - but might leave the door open for new deals that would be more acceptable to his administration.

After the 2008-9 Great Recession, the Trump triumph is neither the first nor the last in the series of nativist political wins in major advanced economies. Much more will follow in the next few years, particularly in Europe. In the process, the political weight of those who drafted the initial TTIP in Brussels may well diminish, or vanish.

The times they’re changing.