Trump and the TPP: Giving Away Something for Nothing

President Donald Trump likes to claim that he is a smart negotiator. “He's an amazing negotiator, probably the best in this world,” his attorney Michael Cohen boasted during the campaign. “He will deal with trade and deal with issues.”

Yet in his first act as President today, Trump showed he does not understand the first thing about trade negotiations. In announcing the U.S. withdrawal from the Trans-Pacific Partnership (TPP) trade agreement, Mr. Trump has just unilaterally given away the biggest piece of leverage he had to deal with the biggest challenge in the world of trade, which is the increasingly troubling behavior by the world’s second largest economy, China. It is the first rule of any negotiation that you don’t give away something for nothing. Mr. Trump just did. And as foreign policy analyst Dan Drezner tweeted: “That sound you hear is the clinking of champagne glasses in Beijing.”

Trump’s actions today are no surprise of course. He said repeatedly during the campaign that he would pull the United States out of the TPP, calling it “another disaster done and pushed by special interests who want to rape our country, just a continuing rape of our country.” In a short video several weeks after the election, he promised to withdraw from the deal, which was concluded in October 2015 but never ratified by the U.S. Congress.

But there is no evidence that he or his advisors have given any serious thought to the implications of killing TPP for their own trade agenda. Trump has made clear that his goal is to negotiate “better deals” that would help to reduce the chronic U.S. deficit in goods trade. Putting aside the many other non-trade issues that affect trade balances, the biggest problem in that regard is China, which by itself accounts for nearly half the U.S. trade deficit in goods.

Under the current rules, China has little incentive to change its behavior. Despite more than a dozen cases brought by the Obama administration against China for alleged violations of World Trade Organization (WTO) rules, the WTO has shown itself unequal to the China challenge. TPP was no panacea, but it would have been an important tool for the United States. With 12 countries representing about 40 percent of the world economy under its umbrella, TPP would have given big advantages to companies that located investment inside the trading bloc, including the United States. China would have been relatively disadvantaged, and faced with the difficult choice of conforming to TPP rules or watching its investment share shrink.

TPP was far from perfect, to be sure. If Trump had asked me, I would have suggested, for example, demanding a renegotiation of the “rules of origin” for trade in automobiles, which would have opened the doors to cars being assembled in Japan using cheap, Chinese-made components and then exported duty-free to the United States. There were certainly other aspects of the deal – including the controversial Investor-State Dispute Settlement (ISDS) provision and the lack of binding prohibitions on currency manipulation – that a Trump administration should have sought to change, all in the service of his goal of increasing investment and creating jobs in the United States.

Had he taken a moment to learn, Trump would have recognized that this was what past presidents have done. Bill Clinton was no big fan of the NAFTA as negotiated by the first President Bush, and demanded the addition of side accords on labor rights and environmental protection before sending the deal to Congress. President Obama similarly disliked the bilateral deals that the second President Bush had negotiated with Korea, Colombia and Panama and also demanded changes before moving ahead.

Contrast Trump’s precipitous withdrawal from TPP with his own approach to the North American Free Trade Agreement (NAFTA), another deal that he has lambasted. Whatever the merits of Trump’s complaints about NAFTA, his tactics so far show some genuine skill as a negotiator. Judging from the campaign, Trump hates NAFTA even more than he hates TPP, calling it “the single worst trade deal approved in this country.” Yet despite his loathing for the agreement, his first act was to call up the leaders of Mexico and Canada and invite them to Washington to start a conversation on renegotiation. As a result, the United States will go into those negotiations with considerable leverage. Trump’s stated willingness to pull the plug on the deal will give him credibility to drive a hard bargain on NAFTA renegotiation, and fight for the best deal possible.

He should have extended the same approach to TPP, which is potentially far more important for the U.S. economy, even putting aside the larger concerns that Trump has now gravely weakened U.S. credibility among its allies in Asia and opened the door for China to become the unchallenged economic power in the region. His decision to pull the plug on TPP immediately shows an astonishing and disturbing short-sightedness.

Trump’s big selling point to many American voters was his supposed prowess as a great negotiator. On trade, one of his signature issues, he demonstrated today that he doesn’t actually know anything about negotiating.