Where next for US trade policies?
While President Donald Trump’s trade policies haven’t been clearly ironed out yet, he’s already withdrawn from the Trans-Pacific Partnership (TPP) and is undecided about participating in the Trade In Services Agreement (TiSA). Where next for US trade?
“On the one extreme, you have people into super globalization where everything is a partnership and everything is win-win, and on the other extreme, everything is a zero-sum game where in order for me to win, you have to lose,” said Amir Bagherpour, Co-Founder and Chief Political Scientist at giStrat.
“The Trump administration tends to lean more towards zero-sum game.”
Trade agreements go beyond economic gains and losses: these policies are integral to diplomacy because they forge alliances and prevent wars - as French economist Frederic Bastiat once summarized; “when goods don’t cross borders, soldiers will.”
Trump is not against free trade, but rather for fair trade, and global trade agreements aren’t easy to negotiate when countries have different agendas.
“The problem in the world is it’s truly difficult to get global agreements - countries like India and China don’t want to open up,” said David Dollar, Senior Fellow at the Brookings Institute.
“It’s an acceptable second best for like-minded countries to move ahead. They’re developing new standards and showing the way, and other countries will hopefully want to join.”
The Trans-Pacific Partnership
One of Trump’s first executive orders was to withdraw from the TPP. “It’s a symbolic move - he didn’t undo anything because it still had to pass Congress,” commented Patrick Van den Bossche, Partner and Board Member with A.T. Kearney.
While TPP may not have had many economic benefits, there were political benefits; with standards for environmental, labour and human rights consistent with the American view. TPP’s coalition of countries created a countervailing force to China.
“We may not want to dictate how people live but one consequence of stepping away is that now there’s a gap where others can step in," added Robert Salomon, Associate Professor of Management and Organisations at New York University’s Stern School of Business. "That’s one of the broader issues of leaving that void in Asia.”
There are legitimate concerns with TPP, but I can’t think of a better trade deal in terms of rebalancing US interests in the Pacific.
And China is looking to step in and fill that political, economic and military void the US is leaving. In March, a delegation from China attended meetings in Chile along with the 11 countries remaining in the partnership.
The US exports high technology and support jobs requiring skills and education, and imports goods requiring relatively unskilled labour. By not participating, the US is no longer able to benefit from any jobs resulting from this agreement, said Dollar.
“There are legitimate concerns with TPP, but I can’t think of a better trade deal in terms of rebalancing US interests in the Pacific,” said Amir. “When the US pulled out of the TPP, China was ecstatic because the purpose of TPP was to position that trade block against China.”
The Trade In Services Agreement
TiSA is currently being negotiated with about 50 countries, including the EU, on behalf of 28 member countries, but excluding China and Russia.
The agreement was secret until WikiLeaks released confidential documents in 2014. “Part of the reason they do this in secret is to avoid undue influence from special interests: large companies can’t ask for special things that they want versus a pure country-to-country negotiation,” said Robert.
The agreement focuses exclusively on services, with telecommunications, technology, distribution and delivery services, banking, healthcare, and transport included in the definition, which may be expanded to include manufacturing, energy and engineering services.
The trade agreement would open borders for service providers, by taking on various restrictions that prevent companies from cross-border operations.
[TiSA is] like-minded countries trying to establish the rules for trade and services, which is more complicated than trade and manufacturing.
If passed, TiSA would:
- prohibit protections that regulate the financial industry and safeguard digital and online privacy;
- remove advantages from local or state-owned enterprises like “buy local” rules;
- and eliminate net neutrality.
While regulations can hinder economic growth, they have the potential to prevent future economic downturns. 'Rachet' and 'standstill' clauses would make the reversal of privatized public services difficult, and personal data can be moved to countries lacking stringent data protection laws.
Whether the US becomes a party to TiSA remains to be seen. “[TiSA’s] another high-quality agreement; it’s like-minded countries trying to establish the rules for trade and services, which is more complicated than trade and manufacturing,” said David.
“It’ll be interesting to see if [the Trump administration’s] attitude is similar to TPP or if they’ll be more open. The US business community is enthusiastic about it because our economy is in services and it’s in our interest to expand that trade and have a level playing field.”