When the United States had the opportunity to join a trade deal representing 40% of global GDP to open markets to U.S. goods, increase foreign trade, and contain China, Donald Trump whiffed.
The Big Picture
International law is often derided by its detractors as merely window dressing, serving no real purpose beyond its appearance. Typically, opponents of international law cite its vagaries and lack of enforcement. While these objections are often based on reasonable arguments, since World War II, the U.S. has found significant benefits in helping to select the drapes for the window treatments. In several international agreements, the U.S. has chosen some rather sturdy curtain rods to compel others to follow the rules. The Trans-Pacific Partnership (TPP) is a prime example of a treaty where the curtains were attractive, the curtain rod was robust, and everyone would benefit from increased trade.
The TPP was a treaty whose discussions began under the George W. Bush Administration. Negotiations commenced in earnest during the Barack Obama administration, culminating in a complete treaty signed in 2016. What started as a small group discussion between Brunei, Chile, New Zealand, and Singapore expanded to include 12 nations representing roughly 40% of the global economy.
From an American perspective, one goal was to open new trading possibilities for American products by reducing trade barriers across the partnership. More trade equals more business, which in turn creates more American jobs. A secondary, arguably more important goal, was to help contain China's influence around the Pacific Rim. While the TPP initially garnered bipartisan support from George W. Bush and Barack Obama, in 2016, it also faced bipartisan opposition from Hillary Clinton and Donald Trump. After the 2016 election, Donald Trump withdrew the U.S. in 2017. Nevertheless, the TPP continued without the United States, with the remaining members forming the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
For more information on the legislative background, Exiled Policy has the write-up.
Zooming In
Why does a trade agreement where the U.S. backed out matter to anyone? Well, let me tell you. We've discussed tariffs and the auto industry, trade wars, and business uncertainty at the Independent Center. While President Trump likes to say that foreign countries are paying the tariffs, that ignores reality. In practice, the consumer typically pays the bulk of the additional cost.
The chain of events typically unfolds as follows: The importer pays the original tariff cost, which is then included in the price the distributor pays for the goods. The distributor passes the cost on to the storefront, and then the consumer is left with the final bill. For a president who was elected on issues like affordability, it's beyond comprehension why the President would engage in what the Wall Street Journal called "The Dumbest Tariff Plunge." In particular, the Wall Street Journal notes that these tariffs hurt Trump voters the most.
According to data from the Bureau of Labor Statistics, the consumer price index since 2020 looks more like a dream stock portfolio than a paragon of price stability. It's a hockey stick, up and to the right. Unfortunately, this means that things simply cost more to the average consumer. Not that things are more affordable.
By opening access to new markets, free trade deals benefit American exporters by allowing them to sell more products. To meet this new demand, those firms often must expand production, leading them to hire more workers. More workers with jobs mean more disposable income in an area and, to use a popular turn of phrase, "a rising tide lifts all boats."
On the containing China approach, Ohio State University Law Professor Daniel Chow put it succinctly at the time of ratification in 2016 "At this moment in history, whether the U.S. or China will write the rules of international trade is an open question. What is not open to question is that the stakes are high: the nation that writes the rules will likely gain supremacy in international trade and will become the leading power in global trade in the twenty-first century." Years after Donald Trump withdrew the U.S. from the TPP, he still aims to contain China. The new tariffs are his preferred tool. Submitting China to rules more stringent than those of the World Trade Organization under the TPP would have forced China to either adhere to those rules and seek U.S. Congress permission to join the TPP, or be excluded from a favorable trading arrangement in the most comprehensive trade deal established up to that point.
China responded to the threat of the TPP by doubling down on the Belt and Road Initiative as well as taking a leading role at the Regional Comprehensive Economic Partnership (RCEP), which includes Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Additionally, the RCEP, upon its signing in 2020, represents the largest free trade deal.
When the United States had the opportunity to join a trade deal representing 40% of global GDP to open markets to U.S. goods, increase foreign trade, and contain China, Donald Trump whiffed the ball like a 5-year-old t-baller batting against Greg Maddux. Meanwhile, China built its own trade regime, benefiting from Trump’s mistake.
Seven of the original twelve TPP countries (Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam) are all members of the Belt and Road initiative.
Independent Lens
Independents care about affordability. Millennials and Gen Z worry about the traditional American dream and have modernized it to fit their circumstances. Implementing artificial price increases, such as tariffs, will only exacerbate affordability issues. The prosperity of the CPTPP has already attracted Great Britain to agree in principle, as well as China, Ecuador, and Taiwan, seeking to join the agreement. Independents want action on lowering prices, not raising them astronomically. Instead of tariffs, it would be more beneficial to engage in more free trade agreements.
Additional Resources
What's Next for the Trans-Pacific Partnership (TPP)?
America Must Return to the Trans-Pacific Partnership
