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China takes the driver's seat

Thomas Kohlmann
November 21, 2016

Two months before the inauguration of Donald Trump as the next US President and the likely end of the Trans-Pacific Partnership free trade deal, signs emerge that the Asia-Pacific region is turning towards a Plan B.

China G20 Gipfel in Hangzhou Obama und Jinping
Image: picture-alliance/AP Photo/H. Guan

During his presidential campaign, Donald Trump promised to pull the US out of the 12-nation mega trade deal known as the Trans-Pacific Partnership (TPP), a vital element in President Barack Obama's "pivot" to Asia strategy.  

The trade deal has been viewed by many as a means for the US to deepen its economic engagement in the Asia-Pacific region, while helping Washington counter Beijing's growing influence. China is currently not part of the TPP.

But Trump's election victory has buried the chances of the pact being ratified by the US Congress in the coming years, casting a dark shadow over the future of the ambitious agreement.  

Still, leaders of the TPP member countries say they would continue to push ahead with the deal. "We reaffirm our commitment to keep our markets open and to fight against all forms of protectionism," they said at the summit meeting of the 21-country Asia-Pacific Economic Cooperation (APEC) group in Peru.

On his last foreign trip, President Obama said abandoning TPP would be a mistake for the United States. "I think not moving forward would undermine our position across the region and our ability to shape the rules of global trade in a way that reflects our values and our interests," Obama told a news conference at the end of the summit.

Trade expert Deborah Elms agrees. "The most significant damage will be to the United States, which does not have alternatives in place. Most of the remaining TPP members have 'Plan B' options they can pursue. The US does not."

Elms, who serves as executive director of the Asian Trade Center (ATC) in Singapore, a think tank and trade consultancy advising governments and businesses in Asia, says the fallout from the TPP collapse is going to be significant.

"TPP members were counting on the agreement to help with domestic reforms and were gearing up for the substantial economic benefits that would flow from a deep and broad integration across 12 markets."

A golden opportunity for China

But since Trump's victory, China has been pushing an alternative vision of free trade in Asia under the so-called Regional Comprehensive Economic Partnership (RCEP), which does not currently include countries in the Americas. Tan Jian, a senior member of China's delegation at the summit, said more countries were now seeking to join its 16-member bloc, including Peru and Chile, and that current members wanted to reach a deal as soon as possible to counter rising protectionism.

Deborah Elms is convinced that Asia-Pacific countries will now push even harder for an alternative trade deal: "Asian countries already have shown enthusiasm for crafting trade agreements at the bilateral and regional level and are strongly linked by a dense web of existing agreements."

Representatives of the countries negotiating the RCEP deal will meet for the 16th round of talks next month in Jakarta.  And they include seven TPP countries (Japan, Australia, New Zealand, Singapore, Vietnam, Malaysia and Brunei). "These seven will likely be pushing RCEP to achieve higher levels of ambition with the remaining nine Asian counterparts, including China and India," Elms told DW.

Peru APEC Abschlußfoto mit traditioneller Kleidung
Asia-Pacific leaders pose for the traditional family photo at the APEC summit in LimaImage: picture-alliance/AP Images/Yomiuri

TPP without US?

Some APEC leaders in Lima have suggested the TPP could continue without the United States, but others said that would require a complete renegotiation. Another way forward might be to make some cosmetic changes that would allow Trump to change his mind on the TPP without losing face, New Zealand Prime Minister John Key suggested.

Obama said he was already hearing calls for a "less ambitious" free trade agreement with fewer protections for workers and environmental standards, a likely reference to the China-led RCEP.

"That kind of agreement would obviously exclude US workers and businesses and access to those markets," he said.

Peruvian President Pedro Pablo Kuczynski, who hosted the summit, said it was too early to write off the TPP and that Trump's support was due more to "difficult economic conditions" than to fierce protectionist sentiment. Canada, a member of TPP but not RCEP, is keeping its options open on future trade deals, Prime Minister Justin Trudeau said.

Australia, similarly, said it was pursuing various opportunities, including RCEP. "Australia doesn't have all its eggs in one basket," Trade Minister Steven Ciobo told reporters, referring to a possible collapse of the TPP.

China in 'driver's seat'

On the sidelines of the Lima summit, Chinese President Xi Jinping showed confidence that his country would be able to fill the gap the US might leave in the region. Xi vowed to open the door even wider to foreign business and play an even greater role in the process of globalization.

Deborah Elms  Asian Trade Centre
Deborah Elms: 'The most significant damage will be to the United States, which does not have alternatives in place' Image: Asian Trade Centre

Speaking to business leaders, Xi offered a vision of a Chinese-led alternative scheme marked by openness to trade and the free flow of investment. In a thinly-veiled rebuke of President Obama's push to create a Trans-Pacific Partnership with Japan and 10 other economies that excluded China, Xi also vowed to pursue trade agreements open to all: "China will not shut the door to the outside world but will open it even wider," the Chinese leader said.

According to Deborah Elms, Donald Trump's plan to pull out of the TPP has put China in the driver's seat in a way that they have not been before. She thinks a withdrawal from the TPP will eventually backfire on the US: "American companies will be at a competitive disadvantage.  They will, in a final irony, likely outsource more to Asia because in order to use the existing trade agreements in Asia, they will need to be physically located in Asia."

The Singapore-based trade expert thinks that the end of the TPP - or at least the current end of the TPP in the United States - means that momentum in trade shifts strongly to Asia. "While the US and Europe seem to be unwilling or unable to push for greater integration, most of Asia still believes that the fastest route to economic development and growth depends on trade."

John Key, New Zealand's prime minister, put it this way: "We like the US being in the region. But if the US is not there that void needs to be filled, and it will be filled by China."