from Renewing America

Finding a TPP Alternative is Becoming a Priority

August 4, 2016

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The Trans-Pacific Partnership, the landmark trade agreement linking the United States, Japan and 10 other Asia-Pacific countries, looks set to become the biggest casualty of the 2016 U.S. presidential election. The path for congressional approval was at best a narrow one already, but the growing election-year controversy over the TPP looks to have choked it off entirely. For America's economic partners in Asia, it is time to start looking for a plan B.

The TPP has been hit in this election by what amounts to a perfect political storm. President Barack Obama had hoped he could sustain the coalition that has prevailed on trade over the past three decades -- overwhelming support from pro-business Republicans and a smattering of pro-trade Democrats willing to buck the labor unions and other trade-skeptic Democratic interest groups.

But the Republican Party has now formally been seized by a demagogue, Donald Trump, who has made opposition to trade agreements and immigration the centerpiece of his campaign. He has called the TPP "another disaster done and pushed by special interests who want to rape our country," and has threatened to pull the United States out of the World Trade Organization.

TPP backers had been placing their hopes on Hillary Clinton, who was formally nominated on July 26 as the Democratic candidate for president. As Obama's Secretary of State, she had called the TPP the "gold standard" of trade agreements. And while she had previously announced her opposition to the current deal, saying it did not "meet the high bar" she had set, there was some hope that small tweaks could bring her on board.

But Clinton has faced big challenges in uniting the Democrats, in particular the boisterous opposition from supporters of Vermont Senator Bernie Sanders who oppose the TPP as a sellout to corporate interests. Anti-TPP signs festooned the Democratic convention in Philadelphia at the end of last month.

Trump has been trying to peel away Sanders' supporters, insisting he is the only real opponent of the TPP in the election. In response, Clinton has dropped her equivocation. Her campaign chairman John Podesta told reporters during the DNC convention: "I can be definitive. She is against it before the election and after the election. And she is not interested in renegotiating the TPP."

The election battles have shattered the already fragile political coalition for trade in the U.S. America's allies in Asia will need to figure out how to respond. President Obama said he still wants to pass the deal in the "lame-duck" congressional session following the November election, but the odds against success are enormous. Notably, he made no mention of the TPP during his speech at the convention endorsing Clinton.

One response -- the one the United States most fears -- is that Japan and other countries will accede to a Chinese-led trading bloc in Asia. China's economic pull is such that some move in this direction is inevitable if the TPP collapses.

But Japan and other Asian countries still have a strong stake in bolstering the U.S. position in the region as an economic counterweight to China. The best plan would be for Japan to propose a bilateral free trade agreement with the United States. Six of the other ten TPP partners already have FTAs with the U.S. In economic terms, the TPP is mostly a U.S.-Japan deal.

Japan should move quickly. Britain, which is beginning the negotiations to extricate itself from the European Union, wants the promise of a trade deal with the U.S. to strengthen its position. An FTA with the U.K. is popular in Congress, and there will be a temptation for the next president to focus on easier deals. The danger is that Asia gets left out. Instead, Japan should make sure it is first in line.

The TPP talks have already resolved the most contentious U.S.-Japan issues, though further negotiations will be needed to bring the next president on board. In particular, Japan may have to accept stronger restrictions on currency manipulation, and tighter rules of origin on auto trade to ensure that the U.S. and Japan gain more than China from lowering tariffs. But a deal with a high-wage country like Japan would face less political opposition than does the TPP.

Such an approach, to be sure, is a distant second best. The TPP has the potential to establish the trade architecture for the region, and to pressure China into playing more by agreed trade rules. A U.S.-Japan FTA would be more limited, and would also leave behind the momentum of countries like Vietnam and Malaysia.

But in the United States, the trade game has changed. While Trump may be mostly bluster, if elected he would clearly insist on a very different set of trade rules. And Podesta said Clinton wants "a new approach to trade."

Asia has to be at the center of defining and shaping that new U.S. approach, one that preserves as many of the gains made in the TPP as possible. And there is no time to waste.

This article originally appeared on asia.nikkei.com.

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