China seen filling the void as US withdraws from trade pact

By Justin Sink and Toluse Olorunnipa / Bloomberg News

President Donald Trump’s formal withdrawal from a long-planned trade deal with Pacific Rim nations creates a political and economic vacuum that China is eager to fill, offering a boost for beleaguered U.S. manufacturing regions while damaging American prestige in Asia.

The move is a sledgehammer blow to former President Barack Obama’s attempt to recenter U.S. foreign policy from the Mideast to Asia.

As the Trump administration retreats from the region by ending U.S. participation in the Trans-Pacific Partnership, China’s Communist leaders are ramping up their globalization efforts and championing the virtues of free trade. In an address last week to the World Economic Forum at Davos, Chinese president Xi Jinping likened protectionism to “locking oneself in a dark room” and signaled that China would look to negotiate regional trade deals.

China is advocating for a 16-nation pact called the Regional Comprehensive Economic Partnership that excludes the United States and lacks some of the environmental and labor protections Obama negotiated into the Trans-Pacific Partnership. Xi and other Chinese leaders are also looking to fill the U.S. leadership vacuum, taking advantage of Trump’s protectionism to boost ties with traditional U.S. allies like the Philippines and Malaysia.

“The U.S. is now basically in a position where we had our horse, the Chinese had their horse — but our horse has been put out to pasture and is no longer running in the race,” said Eric Altbach, vice president at Albright Stonebridge Group in Washington and a former deputy assistant U.S. Trade Representative for China Affairs. “It’s a giant gift to the Chinese because they now can pitch themselves as the driver of trade liberalization.”

Sen. John McCain, an Arizona Republican who chairs the Armed Services Committee, ripped Trump’s decision. Obama’s last defense secretary, Ash Carter, once said that the Asia-Pacific trade pact would be more strategically valuable than another aircraft carrier battle group in the Pacific.

U.S. withdrawal from the pact “will create an opening for China to rewrite the economic rules of the road at the expense of American workers,” McCain said. “And it will send a troubling signal of American disengagement in the Asia-Pacific region at a time we can least afford it.”

Obama saw TPP as “much more than an agreement that would increase international trade,” according to Jack Thompson, a senior researcher at the Center for Security Studies in Zurich.

The pact was a crucial initiative “to build and maintain long-term relationships to reassure the other nations in the region,” he said in an e-mail.

But Trump’s withdrawal “directly undermines all of this careful work and gives China yet another opportunity to demonstrate that it represents the future of the security and economic system in East Asia, and that the U.S. is in decline and can’t be counted on to stick around,” Thompson said.

China’s 16-nation RECP would include southeast Asia countries, as well as Japan, South Korea, Australia, New Zealand and India.

While it reduces tariffs, it wouldn’t require its members to take steps to liberalize their economies, protect labor rights and environmental standards or protect intellectual property. Developing nations within the agreement are also given more time to comply with regulations that do exist.

“It’s an opportunity for China to defer its own reforms and use its own system as a model to draw other countries closer to its orbit,” Dan Ikenson, the director of the Cato institute’s Herbert A. Stiefel Center for Trade Policy Studies, said in a phone interview.

Leaders from Australia, Malaysia, and other nations who had championed TPP quickly signaled, following Trump’s election, that they would shift their attention to the RECP.

When Obama tried to garner support for TPP in the U.S., he regularly warned that failure to pass the deal would allow Beijing to replace Washington in driving the rules of global trade. And his Council of Economic Advisers estimated that the passage of RECP would lead to the loss of market share among U.S. industries that now export more than $5 billion in goods to Japan.

But the trade deal never had overwhelming support in Congress, where many Democrats applauded Trump for withdrawing from it on Monday.

“I am glad the Trans-Pacific Partnership is dead and gone,” Sen. Bernie Sanders of Vermont, who campaigned for president as a Democrat on the same promise to scrap the deal, said in a statement. “For the last 30 years, we have had a series of trade deals — including the North American Free Trade Agreement, permanent normal trade relations with China and others — which have cost us millions of decent-paying jobs and caused a ‘race to the bottom’ which has lowered wages for American workers.”

The biggest economic impact will likely be on apparel and footwear importers who would have seen tariff savings as a result of the deal, according to Bloomberg Intelligence analyst Caitlin Webber. Wal-Mart, Gap, and Nike were among the companies who had lobbied for the pact.

Software and entertainment companies like Disney and Comcast will also be deprived new tools to battle privacy and copyright infringement.

“The TPP would have mandated criminal penalties for large-scale violations and guaranteed rights holders the ability to seek losses in civil cases,” Webber said. “The deal’s copyright term — life of the author plus 70 years — would have mirrored that of the U.S.”

And it will likely be more difficult for American companies to penetrate Asian supply chains in the future, as relationships are established among the countries participating in RECP.

The ramifications of Trump’s move could extend beyond trade. Asian leaders are stung that after investing political capital in the U.S.-led trade deal, America was unable to follow through, and have signaled a new wariness that could extend to other aspects of the relationship.

Killing TPP “really undermines the United States” in the eyes of Asian allies, Ian Bremmer, president of the Eurasia group, said in a phone interview.

“They put a lot of effort into it, and now they feel like they can’t rely on the United States,” he said.

Meanwhile, the Chinese government has signaled that they’re willing to negotiate and that countries would be wiser to commit to them.

Countries in both Asia and Latin America are saying that “if they can’t get the U.S. to commit to a deal, then screw it, they’re going to China,” Bremmer said.

Singapore Prime Minister Lee Hsien Loong, during his visit to the White House in August, warned that abandoning the agreement would damage every part of Japanese-U.S. relations, including the military alliance between the countries.

“The Japanese, living in an uncertain world, depending on an American nuclear umbrella, will have to say, on trade, the Americans could not follow through; if it’s life and death, whom do I have to depend upon?” Lee said. “It’s an absolutely serious calculation, which will not be said openly, but I have no doubts will be thought.”

Influence in the Asia-Pacific region appears less important to the new president than his ability to deliver on a key campaign promise and burnish his image as a champion of American workers.

At his signing ceremony Monday in the Oval Office, Trump called the move a “great thing for the American worker, what we just did.”

Sen. Ben Sasse, a Nebraska Republican who has been critical of Trump, said supporters of free trade had failed politically.

“It’s clear that those of us who believe trade is good for American families have done a terrible job defending trade’s historic successes and celebrating its future potential,” Sasse said in a statement. “We have to make the arguments and we have to start now.”