The American President-elect says he is ditching his country’s commitment to the Trans-Pacific Partnership (TPP) in favour of bilateral deals with individual nations. This is a blow for ASEAN nations that would have benefitted but creates a drive for new, and potentially better, options to emerge.
Even before Donald Trump announced that he would not take America into the Trans-Pacific Partnership (TPP) Vietnam had already given up.
“The United States has announced it is suspending the submission of TPP to the parliament, so there are not sufficient conditions for Vietnam to submit its proposal for ratification,“ Prime Minister Nguyen Xuan Phuc told the National Assembly.
The Prime Minister, however, emphasised that they want to continue building good relationships with the U.S. “We already have signed 12 free trade agreements, so joining the TPP is good, but without joining TPP we will still continue to further the economic integration under programmes we have joined,” Mr Xuan Phuc added.
And they are not alone. The signal from Trump that scrapping the U.S commitment to TPP will be one of his first tasks in office has left analysts looking for a new force to drive ASEAN internal and external trade. And where America retreats, it seems China benefits. After all, Beijing has already started investments and infrastructure deals with various ASEAN nations such as Malaysia, Thailand, Vietnam and Cambodia.
A growing force
“China’s a big winner here. The US is not only losing economic but also political leverage in Asia from withdrawing from the TPP,” believes Frederic Neumann, the head of Asian economic research at HSBC. “China can now use its vast internal market as a bargaining chip and bring other economies closer into its orbit.”
As to what happens next, Malaysia previously announced that it would stay committed to the enhancement of economic and trade relationships with the US and other countries, regardless of the fortune of the deal. “Whether TPP proceeds or not, we remain committed to strengthening our economic and trade ties with the US and the other countries involved,” Prime Minister Najib said.
Neumann believes the outcome of Trump’s move will be a more inward-looking policy in Asia, “It’s a watershed moment, not necessarily for the better for world trade. It means greater regionalisation for these economies. American companies will be at a loss, finding they have reduced market access,” he said. “Vietnam, Malaysia, and Japan will be the losers from the collapse of TPP.” In fact, Malaysian officials recently warned as many as one million jobs would have been created by having the TPP.
Singapore’s Prime Minister Mr Lee Hsien Loong also shared his disappointment about Trump’s approach to TPP, highlighting that many years were invested in the negotiation of the pact and the carefully balanced deal ran to thousands of pages. As such, it would be extremely difficult for the deal to be amended or changed.
But for some the cancellation will be viewed as better news. Cambodia embraced Trump’s election, with Heng Sour, spokesman for the Cambodian Ministry of Labor and Vocational Training saying the TPP agreement wasn’t in the best interests of the country. He hoped taking the deal off the table would help maintain competitiveness and promote employment for his country.
From the Chinese view, President Xi Jinping was in Peru in the week of Trump’s pledge and discussions were already on the table about opening up its markets to free trade options. “China will not shut its doors to the outside world but instead open more doors,” he said in a keynote address “We’re going to […] make sure the fruits of development are shared.”
China’s alternative offering is its Regional Comprehensive Economic Partnership (RCEP), of 16 nations, including China, India and members of ASEAN. Leaders across the region will almost certainly now be considering the deal in a different light. The Philippines is already a member and Finance Secretary Carlos Dominguez said it deserved more attention because that is “where the Asean countries are. We are more open to that grouping and we will put the TPP in the back burner”.
But it is important to note that America should not entirely be counted out. Trump says that although he is stepping away from TPP, he will be looking to develop bilateral trade deals with individual countries. But it is also worth noting that that is a policy that China has been following for some time. Again, Beijing is ahead of the game.
As the impact of Trump’s decision becomes better understood there will almost certainly be new alliances and opportunities forming. For example, while President Xi used the platform in Peru to promote wider cooperation Indonesia proposed an economic bloc built from the ASEAN brotherhood and The Pacific Alliance, of four Central and Latin American states. This would serve as a balance to both China and America.
Without even entering the White House Trump is already creating ripples across the world. During the campaign trail he repeatedly stated that other countries should reply on America less and look to themselves more. In the Asia-Pacific region that shift seems to have already started, and come January the President-elect – and the American economy – will need to be ready to reap what he sowed.