Dealing with fallout from dumped trade agreement

As nations scramble to regroup after the US withdrawal announcement, who will be the winners and losers?

The withdrawal of the United States from the Trans-Pacific Partnership has become irreversible. The demise of the TPP does not come as a surprise, since President-elect Trump repeatedly vowed to pull the US out of the agreement during his election campaign. TPP has not yet been ratified by the Congress, which means Trump can abandon it to honor his election promise without tough legislative obstacles.

So what comes next after the fall of TPP?

There was one more message from Trump along with withdrawal from TPP - that he would replace it with fair bilateral trade deals. His administration may seek deals with individual Asian countries, especially the TPP members who don't currently have free trade agreements with the US: Japan, Malaysia, Vietnam, Brunei and New Zealand.

The benefit of a bilateral approach is to allow tailor-made trade terms for the US but at the expense of lengthy negotiations with individual partners and a lack of the synergy that comes from a regional trade bloc.

On the regional level, possible options include the Free Trade Area of the Asia Pacific or a free trade agreement with the 10 ASEAN countries.

While commitment to the FTAAP was again reiterated at the APEC Leaders' Meeting this year, development has been stalled with very limited progress in recent years. No conclusion is in sight for the ambitious goal of forming a mega 21-member free trade area in Asia Pacific.

Of the 10 ASEAN countries, only Singapore has signed a trade deal with the US, leaving huge potential for further engagement between the US and ASEAN. However, the abundance of low-cost labor in ASEAN countries could make an agreement with ASEAN unpalatable for the US, given its strong belief that free trade is taking away domestic employment.

Growth of the global merchandise trade peaked in 2014. The World Trade Organization has estimated that global trade will grow by only 1.7 percent in 2016. As the biggest trade deal in recent years, TPP was expected to give momentum to global trade by eliminating barriers and tariffs. After TPP fails, the outlook will depend on other factors, including the recovery of the world economy and the development of other major trade deals like the Regional Comprehensive Economic Partnership.

Furthermore, public sentiment against global economic integration and free trade has been stirred up throughout the world. Free trade is now associated with job losses, a race to the bottom, inequality etc. This development will put a brake on further liberalization of the world economy. The allocation issue now becomes a much important matter than the gains from free trade.

Who will gain the most? The media generally view China as the biggest beneficiary of the failure of TPP, because other countries will turn to trade agreements with China due to looming trade protectionism in the US. Some commentators even think China will take the chance to speed up the RCEP to elevate its influence in the Asia Pacific region.

In reality, ending the TPP will leave more room for China to spread its influence in the Asia-Pacific region. China has long been a supporter of economic integration and has been actively negotiating free trade agreements with different countries. Besides, China's Belt and Road Initiative has already been underway for three years. Its financing arm, the Asian Infrastructure Investment Bank, is open to applications from all nations. Thus, claims of an opportunistic Chinese move as a result of the US withdrawal from TPP are wholly unfounded.

Some critics also suggest that fading US influence in Asia will lead to a rising China rewriting global trade rules. China still needs to enrich its experience and skills in handling international trade rules. Besides, its rule-setting process with other trading partners is transparent and relies on consensus rather than being unilaterally imposed by one side. Mutual benefits and respect are given great emphasis in China's economic treaty negotiations with other nations. Examination of existing trade agreements signed between China and its partners show that most of the contents refer to the legal text of the WTO.

No doubt China's influence in Asia will keep growing, given the size of its economy, but concerns about it reshaping the world economic orders is over-exaggerated.

On the other hand, based on Trump's previous rhetoric on the trade with China - such as labeling the country as a currency manipulator, lodging trade cases against China, raising tariffs on Chinese imports and so on - we cannot rule out the possibility of protectionist measures by the US against China.

The author is chief economist with Bank of China Hong Kong, and an academic committee member at International Monetary Institute of Renmin University of China. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 12/02/2016 page8)