President elect Donald Trump has confirmed his intention to withdraw from the Trans-Pacific Partnership (TPP) in his first day in office, prompting more doubts about the future of the agreement.
Candidate Trump had made withdrawal from the TPP one of the cornerstones of his campaign and, unlike his promise to repeal Obamacare, this looks set to remain a priority.
“My agenda will be based on a simple core principle: putting America first. I’m going to issue a notification of intent to withdraw from the Trans-Pacific Partnership, a potential disaster for our country. Instead, we will negotiate fair bilateral trade deals that bring jobs and industry back onto American shores,” Trump said in his first television address to the American nation.
The news was met with disappointment among other TPP signatories, but does not necessarily mean the end of the agreement.
Sergio Lehmann Beresi, chief economist at Chile’s BCI Bank, tells GTR: “External markets have been the focus of the Chilean economy during the last four decades. This policy allowed Chile to grow rapidly and reach higher levels of development. Therefore, despite the US’ absence, the TPP [remains] part of the Chilean economic strategy for the next years. TPP will lose, however, a significant part of its positive impact on global trade. This is clearly bad news.”
Australia’s prime minister Michael Turnbull has reminded reporters that there is “very strong support among the other 11 parties to the TPP to ratify it and to seek to bring it into force”, reiterating Australia’s commitment to the deal.
Other leaders in Asia Pacific have issued similar statements, but there are concerns that Japan would not want to continue working on the agreement without the US’ participation.
Despite the continuing efforts of some of the signatories, the TPP in its present form is likely dead, but not forgotten. John Raines, IHS Markit
“I would not be surprised if various Pacific countries decide to pursue a path of renegotiation following a US exit, especially as much of the legwork has already been done. The question is whether Japan would sign on to such an effort without the US on board,” John Raines, political analyst at IHS Markit, explains to GTR.
In fact, Japanese prime minister Shinzo Abe said on Monday (November 21, before the address), that the partnership would be “meaningless” without the US.
“Despite the continuing efforts of some of the signatories, the TPP in its present form is likely dead, but not forgotten,” adds Raines.
This is likely to be music to China’s ears, as the TPP was the way President Obama hoped to counter growing Chinese influence in world markets. Even if the deal still goes ahead, the US’ withdrawal leaves a superpower-shaped hole to be filled in Asia Pacific trade, and China is already pushing harder for the implementation of the Regional Comprehensive Economic Partnership (RCEP) to grow its influence in the region.
In the address, Trump also said he would lift restrictions on shale oil and clean coal production on his first day as president – another electoral promise. Combined with a plan to cut taxes and increase fiscal spending for infrastructure, this measure is expected to lift the US economy.
“I think most analysts had already priced in the prospect of TPP coming to an end, at least in regards to the US. While a trade war with either China or Mexico would certainly depress economic activity, IHS Markit generally expects US growth to rise in 2017/18, especially if Trump’s tax breaks and fiscal stimulus come on line quickly,” concludes Raines.