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US backing out of TPP

January 28, 2017 | Expert Insights

What is the way forward? 

  • President Donald Trump has signed an executive order to withdraw from the Trans-Pacific Partnership trade deal. The trade pact was, former President Barack Obama's pivot to Asia, signed by 12 nations and covered 40% of the world's economy. 
  • Mr Trump also warned that he would impose a "very major border tax" on companies that move manufacturing out of the US.
  • The president is also expected to an sign executive order to renegotiate the North American Free Trade Agreement (Nafta), a trade pact between the US, Canada and Mexico. 

Comment 

  • TPP was negotiated in 2015 by nations including the US, Japan, Malaysia, Australia, New Zealand, Canada and Mexico, but has not yet been ratified by the individual countries. 
  • TPP’s aim was to strengthen economic ties and boost growth, including by reducing tariffs. It also included measures to enforce labour and environmental standards, copyrights, patents and other legal protections. 

Analysis

  • Strategically, TPP’s failure will reinforce doubts about American credibility in the region amid a rising China, as several Asian leaders including Singapore’s Lee Hsien Loong have warned. TPP leaves a leadership vacuum in shaping the standards of future trade deals.
  • A China-led free trade deal named the Regional Comprehensive Economic Partnership (RCEP) will receive a boost with the end of the TPP. Japan has already said that it intends to focus on the RCEP if the TPP fails. 

Assessment

Trump, throughout his campaign has stated that the TPP will hurt American workers and undercut US companies. The deal has to be ratified by February 2018 by at least six countries that account for 85% of the group’s economic output. And this means that Japan and the US will need to be on board. The way forward from an uninterested US could be strengthening economic ties between ASEAN countries. RCEP is seen as a counter to TPP as it includes more than 3 billion people, 45% of the world’s population with a combined GDP of about $21.3 trillion, accounting for about 40% of world trade.