China has drawn first blood in the “trade war” between Washington and Beijing. With surgical precision, Beijing has targeted America’s farmers, in key agricultural states that are critical to U.S. President Donald Trump’s political fortunes.
Chinese tariffs on U.S. pork, nuts and fruits—which were in retaliation for Washington’s tariffs against steel and aluminium—have swiftly mobilized home-grown special interest groups against Trumps trade policies.
The next round of Chinese tariffs could inflict even more pain . Beijing has promised to retaliate against the USTR’s $50 billion of Section 301 tariffs, with more of its own tariffs, many of which are aimed at the U.S. agricultural sector– including soy beans, which would have a devastating impact on farmers throughout the American Midwest.
Trump and his trade team are now grappling with a dilemma of their own making. And in what may become an irony of historic proportions, Trump’s best defensive tactic might be to have America re-join the Trans-Pacific Partnership (TPP) .
Trump’s supreme irony
When Mr. Trump withdrew the U.S. from the original TPP– now known as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)– he put the American agricultural sector at a competitive disadvantage. By depriving U.S. farmers of preferential duty rates throughout the CPTPP territory, The White House unwittingly turned Canadian, Australian and Mexican growers into winners and U.S. farmers into losers . This trade scenario will begin to play out at the end of this year, when the CPTPP goes into effect.
Withdrawing from the TPP was damaging to the American agricultural sector , but the further piling on of Chinese retaliatory tariffs has now brought things to a tipping point. In a startling reversal of thinking, Trump has tasked the USTR’s Robert Lighthizer with looking into the prospects of the U.S. re-joining the TPP.
The threat of trade wars have unintended results, but few could have predicted how quickly grassroots politics in America would pressure the administration to reconsider its position on the TPP.
But how realistic is the prospect of Trump’s America re-joining the TPP?
First, it will depend on how extensively Trump and his trade advisors try to alter or renegotiate the existing agreement. Second, going forward, it will depend on how effectively the existing political system of checks and balances in the U.S. can contain the often mercurial behaviour of the president.
Rejoining the existing trade agreement
The text of the existing CPTPP agreement looks pretty much the same as the original TPP document, when the U.S. pulled out. Apart from about 20 elements of legal text that were suspended—mostly regarding IP and data protection—the remaining 11 members of the TPP have gone to great lengths to retain the original template. Regarding the 20 elements of suspended text, these have merely been set aside for later consideration. They have not been deleted, and the U.S. would certainly seek to have them re-instated.
Deborah Elms of the Asia Trade Centre, in Singapore, who, for years, has closely monitored the ongoing CPTPP dialogue said, “if the U.S. comes back in the near term, the CPTPP could take effect exactly as originally negotiated with all existing market access for the U.S. still intact.”
Before the U.S. joins, however, other member CPTPP countries must ratify the agreement. This is currently underway, as Japan, Australia and Mexico have already presented the CPTPP agreement to their parliaments and other countries will soon follow.
But is the Trump administration going to live with a virtual cut and paste from the original agreement, which was negotiated by the Obama administration?
A lot will depend on who Trump listens to within his inner circle. Larry Kudlow, his National Economic Advisor, would be less militant than Peter Navarro, Trump’s Director of Trade Policy, if it came to making new demands of U.S. CPTPP trading partners.
There will be little appetite for new negotiations by the existing CPTPP members should Trump decide that he wants to fundamentally change the existing text or gain further concessions. Realistically, the remaining 11 members will have to give up some symbolic concessions so Trump can declare victory and move on—but these concessions will have to have a negligible effect on the core agreement.
America’s system of checks and balances and trade
America’s political system of checks and balances has served the country well. The federal, state and local systems of government have buffered many of the actions taken by this—and previous—administrations. The U.S. federal court system has successfully challenged executive orders and federal agency directives.
Should the U.S. join the CPTPP, it will be the culmination of the work done by trade associations, grassroots political organizations, special interests and other key stake holders. This bottom-up, collaborative kind effort will manifest itself thorough the U.S. political process—in the 2018 midterm elections and beyond—in order to ensure that U.S. leadership upholds its trade commitments.
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