U.S. Foreign Policy Aspirations and the Trans-Pacific Partnership: Economic Integration and Political Alignment?

At times, it seemed as though the negotiations over the Trans-Pacific Partnership (TPP) would go on interminably.  Begun in 2010, the TPP evolved from the four-country Trans-Pacific Strategic Economic Partnership Agreement to encompass twelve Asia-Pacific countries, including the United States.  It would eventually take five years for the trade representatives from those countries to hammer out an agreement, the final terms of which were settled on Monday morning.

Trans-Pacific Partnership Member Countries

Over the coming months, much will be said, both for and against, the possible economic and social implications of the TPP as it is debated in the legislatures of its twelve member countries before it can be enacted.  But the TPP also carries with it strategic implications—not only for its smaller members, but also for its largest, the United States.  American interest in the TPP began during the last year of President George W. Bush’s tenure.  But it was the administration of President Barack Obama that moved the TPP to the forefront of U.S. foreign policy in the Asia-Pacific.  So important has the TPP become that Obama persuaded his political opponents in the U.S. Congress to award him “fast-track” trade promotion authority, so that American trade representatives could assure their counterparts from other countries that the U.S. legislative body would not tinker with the specific terms of the trade agreement once it was reached.

Strategically, the United States has come to see the TPP as critical to its long-term security in the Asia-Pacific.  It helps to ensure that, even with China’s rise, countries around the rim of the Pacific Ocean would have economic incentives to pursue strong relationships with the United States.  As that line of thinking goes, the more closely the trade interests of the TPP’s twelve member countries are aligned, the more closely their economies will integrate and, ultimately, the more likely their political outlooks will align.  Perhaps unsurprisingly, the United States is also pursuing a trade agreement similar to the TPP with the countries of Europe called the Transatlantic Trade and Investment Partnership or TTIP.

That line of thinking is not lost on either China or Russia.  While China chose not to participate in the TPP to avoid more pressure to remove its many trade barriers, it pushed for another (less onerous) trade agreement called the Regional Comprehensive Economic Partnership or RCEP, which did not include the United States.  China has also championed its own form of economic integration, called the “One Belt, One Road” initiative (tying together China’s land-based “Silk Road Economic Belt” and sea-based “Maritime Silk Road” efforts).  That initiative has sought to knit together the various economies along the ancient Silk Road between China and Europe.  Beijing even created the Asian Infrastructure Investment Bank earlier this year, in part, to support the construction of the trade infrastructure needed to facilitate that integration.

For its part, Russia has tried to cobble together the Eurasian Economic Union (EEU) from the countries that were once parts of the Soviet Union.  Russia has pursued the economic integration of the former Soviet republics as a way to not only expand its market space, but also strengthen its sphere of influence over them.  While most of the former Soviet republics could not ignore the economic potential of the EEU, they have been cautious about their participation in it.  Even Kazakhstan, an early supporter of the EEU, has repeatedly stressed that the EEU should remain an economic, rather than a political, grouping.  As can be expected, most former Soviet republics are protective of their new-found sovereignty.  And so, they are keenly sensitive to any Russian scheme that may absorb them into a reconstituted empire, particularly in light of what has happened to Ukraine’s Crimea and Donetsk provinces.

But lest we are to believe that closer trade and economic ties will inevitably lead to closer political alignment, history provides plenty of examples where that failed to happen.  One cannot say that closer economic integration between the European Union and Russia has brought the two to a more closely aligned political outlook.  Instead, they have used their respective trade dependencies on one another as weapons against one another in their political clash over Ukraine.

In the Asia-Pacific, one needs to look no further than the experience of China and Japan.  In the 1990s, Japanese companies led the multinational charge to set up outsourced factories and develop new markets in China.  In 1999 the two countries did $66 billion in bilateral trade.  By 2011 that figure climbed to $345 billion.  The two economies became increasingly integrated, with China more reliant on Japan for industrial machinery and Japan more reliant on China for consumer goods.  But then tensions over the Senkaku Islands, which began in late 2010, boiled over in 2012 and sparked anti-Japanese riots in China.  Tensions have run high ever since, cooling their economic relationship.  Every year after 2011 trade between the two countries has fallen.  Last year their bilateral trade slipped to $309 billion; the trade figures for August 2015 suggest that this year’s total will be lower still (indeed it is on track for a steep decline).  Rising costs in China and a stagnant Japanese economy surely contributed too, but they cannot fully explain the drop, given China’s continued, albeit slower, economic growth.

China Japan Bilateral Trade in Goods

The causal logic that closer trade and economic ties will lead to closer political alignment could be turned on its head.  One could argue that it is when political outlooks are aligned that closer economic integration often seems desirable (and also that when political outlooks are in conflict that economic integration often seems dangerous).  That is not to say that the TPP is not a worthy accomplishment; it is.  But the United States should be wary of relying too heavily on the TPP to ensure its security in the Asia-Pacific.  Even if the U.S. Senate ratifies the trade agreement, the United States should continue to actively pursue other strategic initiatives in the region with equal verve.

[1] Japan External Trade Organization, Japanese Trade and Investment Statistics, 1999-2015.

Tags: , , , , , , , , , , , , , , , , , , , ,

Market Warriors: Why the Trans-Pacific Partnership Matters

Overshadowed by the Boston Marathon terrorist attack, military tensions on the Korean peninsula, and possibly Downton Abbey reruns, the Trans-Pacific Partnership (TPP) took a big step forward in April 2013, when Canada assented to Japan’s participation in the partnership’s regional free-trade negotiations.  Begun in 2010, the American-led TPP now encompasses a dozen countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.  Even more noteworthy is that almost all aspects of international trade, except for labor mobility, are open to some measure of liberalization.  If successful, the TPP will rank among the world’s most comprehensive free-trade agreements.

Even so, most consider free-trade negotiations as dull at best, unless of course the outcomes of those negotiations directly impact their lives.  Then, such negotiations become vitally important, because they can result in terms that advantage certain industries over others by removing once-protective barriers to competition.  For example, should the TPP ultimately lower tariffs on motor vehicles and rice, American automobile unions and Japanese rice farmers may find their industries under increased pressure to improve efficiency and productivity.  Sometimes countries join a free-trade arrangement to improve their economic competitiveness.  At other times they do so because they feel forced to.  Japan’s interest in the TPP reveals elements of both.  Japan surely seeks higher economic growth; but it is also concerned that without freer trade its businesses would face even stiffer competition from other Asian countries, such as South Korea, that do have free-trade arrangements with its trading partners.

But free-trade arrangements have other, more political dimensions.  Beyond the direct economic benefits of more international trade, its advocates often cite those benefits as valuable to often (but not always) restrain political differences—eschewing conflict for material wellbeing.  Certainly that was a major rationale behind the formation of the European Common Market after World War II that eventually became the European Union.  An extension of such reasoning is that countries mutually benefiting from trade are more likely to develop similar outlooks and, thus, become potential allies.  During the Cold War, American influence on the Asia-Pacific periphery can be said to have been enhanced as a result of the redirection of the region’s trade away from the mainland behemoths of China and the Soviet Union, which had closed themselves off (fearing the corrupting influence of capitalism) and due to the generally open market (and willing consumers) of the United States.

But with the end of the Cold War and China’s rise, the region’s economic interests are reverting to their traditional patterns.  And in that light, one can see the TPP as in the American national interest to ensure America’s position and relevance in the Asia-Pacific region.  But the TPP is not the region’s only free-trade arrangement in play.  ASEAN began such efforts in the early 1990s with a free-trade agreement among its member countries.  And today, China, Japan, and South Korea are pursuing a separate a trilateral free-trade agreement.  Though not in direct competition with the TPP, such a trilateral arrangement would surely benefit China by opening two big markets to Chinese goods (and thereby reducing its dependence on the American and European markets) and tempering the impact of the TPP.  Japan and South Korea also hope to benefit from greater access to China’s market and to ease the competitive pressures from ASEAN-based companies operating under an ASEAN-China free-trade agreement signed in 2002.

Meanwhile, China has promoted trade talks through the Regional Comprehensive Economic Partnership (RCEP), which comprises ASEAN and the six countries that already have free-trade agreements with it, including Australia, China, India, Japan, New Zealand, and South Korea.  If concluded, the RCEP would embrace 3.4 billion people and a combined GDP of $21.4 trillion.  By comparison, the TTP’s twelve countries would encompass 790 million people and a combined GDP of $27.5 trillion.  That is why it was so important for the TPP to include Japan, with its 127 million people and the world’s third largest economy.

The TPP has proceeded at a fairly fast pace.  The twelve-country partnership has taken less than three years to reach its present point.  In contrast, the three-county North American Free Trade Agreement took eight years to bring to fruition.  Indeed, many issues can surface to delay negotiations, even non-economic ones.  The free-trade talks among China, Japan, and South Korea recently stalled when Chinese officials delayed the next round of negotiations, nominally citing scheduling conflicts, but more widely seen as a signal of Chinese displeasure over Japan’s handling of a territorial row between the two countries.

International trade and finance are in the process of rearranging themselves.  Early in April, China inked an agreement with Australia that allowed each other’s currencies to be directly converted, without the intermediate need for the U.S. dollar.  It marks the third such agreement for China and another step away from the U.S. dollar as the medium of international trade.  A decline in the international use of the U.S. dollar in trade should not be discounted, since the dollar’s universal usage not only makes it easier for American companies to compete overseas, but also indirectly lowers American interest rates and boosts American economic growth at home.  It is another facet in a wider trade competition among countries.  While the TPP may compel some segments of American industry to change after their tariff protections are lowered, in the longer run it will hopefully maintain not only America’s economic competitiveness, but also its security interests in the Asia-Pacific.

Tags: , , , , ,