“The thinking is that it’s better to have a weakened TPP than no TPP at all,” Eugene Tan, a former member of Singapore’s parliament, said. Other Pacific Rim countries seem to agree.
The question that remains is: Can smaller economies partner after the departure of the United States to salvage the Trans-Pacific Partnership? In short, yes. A renegotiated TPP without a superpower like the United States or an economic giant like China would be a much stronger if not more feasible agreement for remaining nations.
The Trans-Pacific Partnership was a wide-ranging trade agreement between 12 countries on the Pacific Rim ranging from Australia to Peru. U.S. President Donald Trump withdrew the U.S. from the TPP during his third day in office.
However, Australia and New Zealand’s Prime Ministers, Malcom Turnbull and Bill English believe the TPP can go on without America. The two leaders are trying to galvanize the eleven nations dispirited by the abrupt American departure. Despite the recent setback, Australia and New Zealand look to reinvigorate the assumed dead-on-arrival trade agreement.
It is possible that this could involve the entry of China into the pact, but, for the moment this is just speculation — the only hint of a Chinese entry into the TPP is a Chinese official refusing to comment on this possibility. Nonetheless, Australia and New Zealand appear driven to resuscitate the agreement in the absence of the U.S. Even without China, these nations must look to renegotiate and implement the TPP.
Should the TPP continue, it would be reflective of a trend in international trade in which small, developed countries, like Australia and New Zealand, increasingly seek to partner with large, developing middle-income countries in order to offset and mitigate the increasing instabilities caused by vacillating trade policies of old economic powerhouses.
An obstacle to this trend are countries like Japan, which have a political dependency on the old West and an economic dependency on the rising East. Japan has the third largest nominal Gross Domestic Product in the world and also has a vested interest in international trade due to its specialization and the geographic limitations of its economy; it could be up to Japan to salvage the agreement. At the moment, however, Japan is not considering forging ahead without the U.S. According to Bloomberg, the TPP would be rendered ineffective without the U.S. and Japan, as together they account for 75 percent of GDP of the TPP nations.
Despite these developments, participating countries should still look to renegotiate the TPP. Without an economic superpower, they can avoid the asymmetric allocation costs and benefits of a superpower-dominated free trade agreement, like the German-dominated European Union and the American-dominated North Atlantic Free Trade Agreement. Japan, given its advantageous position, should look to renegotiate the TPP and shape the Asian market while it is still the largest economic partner in the agreement, rather than waiting to restart negotiations with China at the table.
China is likely to dictate terms that are just as unfavorable to smaller countries as those of the U.S. Smaller TPP countries should know a good deal when they see one: Japan may be big, but it is not nearly as aggressive as China or the US.
There is little reason to be apprehensive: the new TPP will not have many of the shortcomings endemic to trade agreements made among developing countries. The diversity — differences in industrialization, standards of living and structure of labor sector — among the remaining TPP members creates a gradient for capital flow without an elephant in the room to soak up all the money and resources. It would seem that the “TPP minus one” may in fact be more suitable than a TPP with the U.S. The U.S. exit opens the door for a genuine, strong regional trade pact not beholden to the fits-and-starts of American domestic policy but rather based on competition between like-sized peripheral powers.
Economic partnerships in the absence of economic giants are not unprecedented. The Association of Southeast Asian Nations stands as an example of a trade bloc without a superpower at its center. ASEAN is also a particularly pertinent example, because it demonstrates that nations within China’s sphere of influence can independently produce a functional and mutually beneficial trade bloc. Furthermore, it frees up small nations from the economic costs of International Monetary Fund-style market reforms. These small nations often do not have the capacity to implement the reforms but are obliged to by a virtue of interacting with a highly technocratic and contrived financial system.
There are more reasons to pursue the TPP — it would also have economic strengths that ASEAN has never had: access to a medium-sized mature market between Australia and New Zealand, access to a large variety of raw materials and agricultural goods from the North and South American Pacific Rim, and a commitment to stability.
At the rate at which the world is globalizing, the TPP will essentially develop of its own accord. Whatever the nature of the agreement, Eastern and Western markets have already converged and there must — and most likely will soon be — a unilateral or multilateral framework through which labor, capital and goods from these two markets can comingle.
Mercy Radithupa is a sophomore in the McDonough School of Business. BUSINESS OUTSIDER appears every other Friday.
Have a reaction to this article? Write a letter to the editor.