Does Donald Trump walking away from TPP hand trade clout in Asia to China? Photo: AFP/Saul Loeb
Does Donald Trump walking away from TPP hand trade clout in Asia to China? Photo: AFP/Saul Loeb

US President Donald Trump and his predecessor Barack Obama seem to share a common myopia when it comes to seeing the consequences of their actions with regard to trade and business with China.

We saw this a year or so ago in the case of the Obama administration’s refusal to join the Asian Infrastructure Investment Bank (AIIB) and we are seeing it again in Trump’s rejection of the Trans-Pacific Partnership or TPP.

The TPP withdrawal suggests that Mr Trump is preparing – wittingly or otherwise – to cede to China leadership of trade matters within the Asia region, while Mr Obama’s effective boycott of the AIIB showed an apparent failure to appreciate the approach of what could prove to be the “Eurasian century.”

Put the two together and what emerges is the prospective eclipse of the US as an economic, and perhaps strategic, superpower within Asia and Eurasia.  That would leave its main Asian ally Japan with the choice to move out of the orbit of the US and partner with China, or to strike out on its own as a would-be Asian leader.

A key difference between the TPP and AIIB issues is that Tokyo is pleading with Washington to stay on board the TPP (which Japan needs largely as a means to avert Chinese economic dominance of the region). In the case of the AIIB, Japan simply hoped the institution would fail if both the US and Japan declined to to join it.

As things turned out, the AIIB did not fail and instead it is moving forward with the backing of 56 other countries in addition to China. Relatively few people have realised the full geopolitical and economic significance of the AIIB.

One Belt-One Bank

The AIIB is not simply another regional development bank. It is specifically an “infrastructure” bank, and even more specifically a vehicle for financing Chinese President Xi Jinping’s grand “One Belt-One Road” (OBOR) concept for development of the Eurasian continent.

OBOR is not some romantic dream of recreating the centuries old “Silk Road” from Asia to Europe via Central Asia. It is more about linking the great industrial centres of China and Europe — from Western China to Eastern Europe and beyond — and creating in the process a new global economic powerhouse that will challenge the US.

This plan for building a new centre of Eurasian manufacturing and commercial prowess comes at a time when China could also expand its economic and trade influence throughout the Asia Pacific region via a new multilateral free trade structure whose architecture (courtesy of President Trump) will be largely free of US influence.

The proposed Regional Comprehensive Economic Partnership (RCEP) stands as an alternative to the TPP for structuring Asian trade and economic cooperation from here on.  The RCEP is part of Beijing’s wider vision of a Free Trade Area of Asia and the Pacific (FTAAP).  It embraces the ten ASEAN states plus Australia, China, India, Japan, New Zealand and South Korea.

Mr Abe’s pleas

Meantime, Japanese Prime Minister Shinzo Abe in particular seems very anxious to not give up on the TPP and is expected to go down almost on bended knee to convince Mr Trump of the need for the pact when the two leaders meet in Washington on February 10.

Mr Abe is anxious to preserve the TPP not only as a counter to China’s expanding economic (and military) influence in East Asia but also as a lever to achieve the structural economic reforms that constitute the “Third Arrow” of his Abenomics policies to revive Japan’s economy. He needs “gaiatsu” or outside pressure in order to accelerate these reforms.

For this reason, and also because Japan sees itself (rather than China) as the natural leader of Asia in partnership with the US, Mr Abe is highly reluctant to see TPP diluted by continuing without the participation of the US.  Hence his comment that TPP minus the US would be “meaningless.”

Mr Trump, as Japan’s former economy minister Akira Amari has observed, has apparently failed to see that, far from being an “enemy” in the trade wars that Trump sees himself fighting on behalf of the US, the TPP is (or was) a potentially powerful lever for strengthening US trade in Asia.

Looser rules

One of the things the TPP is designed to do is set rules under which state-owned enterprises (SOEs) can operate and compete with privately owned firms within TPP economies. The SOEs are synonymous with China and Vietnam which play by their own rules.

The TPP also envisages a mechanism whereby foreign firms investing in its member economies can challenge governments who try to restrict their freedom of operation. These two rules would be a boon to US business and also would mean that China would need to come into line if it joined the TPP.

An RECP agreement on the other hand, would almost certainly operate under significantly looser rules. China and other prospective (and even some current) members of the TPP would probably welcome that.

The lure of a looser agreement will probably be a sales pitch for Australian Prime Minister Malcolm Turnbull if (as appears possible) he emerges as a free-trade champion in Asia Pacific while Mr Trump sulks in his tent and Mr Abe seeks to cajole the US into coming out and leading the “high road” of trade liberalisation.

The China pivot

Since Mr Trump ditched the TPP, Turnbull has been rallying Asian leaders from Japan to Singapore and urging them to embrace the idea of an alternative to the TPP so that momentum toward trade liberalisation in the Asia Pacific region is not lost.

It is not just the loss of opportunity to “write the rules” of Asian trade (as former president Obama put it) and handing that role to China that President Trump needs to worry about. He should also be concerned about America’s narrowing global vision of Asia and the world.

As one seasoned observer in Japan said, “it is reasonably clear that Asia can grow by 4-5 % (annually) without America, but it is doubtful that America could grow by as much as 2-3 % without Asia.”

Before the advent of the Trump presidency, many people had expected that a move from US to greater Chinese leadership would take at least a generation. Now the thinking is that it could happen in years not generations.  The more America turns inward, the more Asia will pivot to China.

Anthony Rowley was formerly Business Editor and International Finance Editor at the Far Eastern Economic Review and has spent 40 years in Asia covering business and finance.  

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