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US withdrawal from TPP may cause reshuffling in Asia-Pacific region

Author  :  WANG SHUJUAN     Source  :    Chinese Social Sciences Today     2016-12-29

On July 25, local people protest the Trans-Pacific Partnership Agreement (TPP) in Philadelphia, Pennsylvania. The TPP may be disintegrated or regrouped if the United States quits. On Nov. 21, President-elect Donald Trump announced that he will withdraw the United States from the TPP on his first day in office.

US President-elect Donald Trump announced on Nov. 21 that he will withdraw the United States from the Trans-Pacific Partnership Agreement (TPP) on his first day in office. The decision, however, might reshuffle economic and trade relations in the Asia-Pacific region while bringing changes to China’s relationship with the United States and Japan. In this context, China should further improve cooperation strategies in response to opportunities and challenges that might occur in the process.

Political purpose

As part of the Obama administration’s strategy to “rebalance” Asia, the TPP is saddled with economic and political responsibilities. In addition, the United States has shown its anxiety about the rise of China in recent years.

In 2015, US President Barack Obama stated after the TPP negotiations that the United States rather than China should dictate global trade rules. At home, he called upon the two parties in Congress to ratify the agreement, explicitly expressing its purpose: to contain China.

In October 2015, trade ministers from the United States, Japan and 10 other countries announced the completion of more than five years of negotiations, a landmark in the construction of a free trade zone in line with TPP rules. Now, due to Trump’s decision, the TPP may suffer a major setback or unravel entirely. Japan is busy lobbying around the world in an effort to keep the agreement alive.

Disintegration or regrouping

Designed to serve the interests of the United States and other member countries while weakening the power of other countries, including China, the TPP can have great influence on economic cooperation in the Asia-Pacific region and on the global economy as a whole. However, Trump’s decision to abandon the TPP adds uncertainties to the realization of its purpose.

If the United States quits, trade mechanisms for the Asia-Pacific region may be reshuffled. The TPP might be disintegrated or regrouped if China is allowed to join. And there might be a new round of contention among all countries involved, complicating the regional integration process.

The United States, Japan, China and ASEAN countries are playing a significant role in framing new economic and trade relations in the Asia-Pacific region. The integration process and formulation of new rules in the region will go on regardless of the fate of the TPP. Moreover, other existing multilateral trade mechanisms provide alternatives to the agreement.

Trump will give priority to national affairs, and the US strategy of “pivot to the Asia-Pacific region” will not be achieved in the short term. Japan has not yet been able to replace the US as the leader of the TPP and hold dominance in Asia-Pacific economic and trade development.

By contrast, the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement (FTA) between ASEAN countries and the six states with which ASEAN has existing FTAs—Australia, China, India, Japan, South Korea and New Zealand—will continue to promote high-level talks, free investment and trade with high standards. China and ASEAN countries are committed to contributing to regional economic integration and sustainable world economic growth.

China plays a key role in regional integration. It has been expanding pilot free-trade zones and accelerating the construction of the “Belt and Road” initiative to serve the goal of building the Asia-Pacific Free Trade Area.

Given the complicated international economic development situation, some TPP member states would like to support China’s proposals on free trade. This indicates that China will likely have greater influence in the Asia-Pacific region and around the world in the future, steering the regional integration toward a path that is free from the fragmentation of various arrangements and the influence of political factors.

Regardless of whether the United States will adopt conservative isolationism, Trump’s presidency will bring uncertainties to the international situation. TPP member states may seek to cooperate with China if the United States quits the TPP, which will underscore the importance of the RCEP. And China will shoulder more responsibilities in the global trade system. In the long run, it will enter an extended period of strategic opportunities.

Relations with US, Japan

The withdrawal of the United States from the TPP will undermine its political credibility and may disappoint its allies. In the future, the United States should reexamine its relationship with China in which frictions coexist with cooperation.

As a whole, however, the international economic and trade balance has fundamentally remained unchanged. As members of the World Trade Organization, China and the United States are bound by multilateral rules. Therefore, Trump will not be able to implement a 45 percent punitive tariff on all Chinese goods as he promised when declaring China a currency manipulator during his campaign.

This does not mean that the two nations will avoid trade frictions, such as anti-dumping and anti-subsidy practices. Trump emphasized the priority of the interests of the US even at the cost of the economic interests of other major countries including China. 

In addition to domestic affairs, the US government will not give up shouldering international responsibility and competing for dominance in trade in the future. In this sense, the US withdrawal from the TPP will bring little change to China-US economic and trade relations, and a trade war will not take place in the near future. China and the United States may become the best partners in cooperation, setting a model for major-country relations in the process of globalization.

At present, the China-Japan economic and trade relationship has entered a sensitive period. On the one hand, Japan has been supportive of the strategy to contain China by taking advantage of the United States. It claimed that the TPP would become meaningless without US participation.

Japanese Prime Minister Shinzo Abe said that there would be a pivot to the RCEP if the TPP were to stall. However, on the other hand, Abe has been recently trying to persuade the United States to reconsider the TPP while lobbying around the world that it would push forward the TPP even if the US withdraws.

In the short term, it is an inevitable choice for Japan to strengthen cooperation with China in order to mitigate the impact brought by the US withdrawal from the TPP. With the progress of the Asian Infrastructure Investment Bank and the “Belt and Road” initiative, China would like to be more open and inclusive in fostering a new relationship with Japan. In the long term, knotty problems still remain in China-Japan relations, and the two nations should continue to strengthen cooperation to achieve mutual benefit.

Opportunities, challenges

Major countries should be more open in order to adapt to globalization. To contribute to better global governance, China should adhere to the principle of open cooperation in international trade. The possible suspension of the TPP may provide more strategic room for China, but it should be aware of how to improve self-reliance and maintain a competitive edge in the new strategic balance.

No matter how the TPP develops or alters, China will conform to open strategies. In the short term, the US withdrawal from the TPP will reduce the pressure on China, releasing potential for the development of the RCEP led by China. China will increase pilot programs on further reform and opening up to promote the construction of the free trade area in the Asia-Pacific region.

There will still be challenges from US-led global governance even if the US quits the TPP because the United States is bound to introduce new moves to safeguard its interests in the Asia-Pacific region and the international community. At present, multilateral and bilateral negotiations, including the TPP, are aimed to promote high-level, free investment with high standards to drive reform of global governance. In the long term, China should properly deal with relations with the US and Japan, cope with new challenges, and strengthen its discourse power in international trade.

It should be noted that difficulties exist in resolving the differences in some fields covered in the TPP. If China gets involved, it will play an important role in mediating between diverged countries. China will take into account the differences and diversity of economic development in Asia-Pacific countries while advocating open, inclusive and mutually beneficial principles to promote regional economic integration.

 

Wang Shujuan is from the Institute of Economics at the Liaoning Academy of Social Sciences.

Editor: Yu Hui

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