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Handing China the Asia-Pacific: How the US withdrawal from the TPP enables China’s expansion

Image credit: COP PARIS (Flickr: Creative Commons)

Immediately following his inauguration as president, Donald Trump carried out his promise to remove the US from the 12-nation Trans Pacific Partnership (TPP). His decision now puts the agreement on the brink of collapse. There have been calls from signature states to 'go it alone'; indeed the loudest calls have come from Australia with PM Malcolm Turnbull proposing a ‘TPP minus one’ deal. Without the US, however, the deal is, as Japanese Prime Minister Shinzo Abe says, meaningless. Importantly, Trump’s action not only signals a simple trade vacuum or an upending of American bipartisan trade policy, but it marks a major shift in the geopolitical and economic future of the Asia-Pacific.

The TPP once presented the US with an opportunity to co-create an order with China, one that promised to bring about a more peaceful world. Former US Trade Representative Michael Froman added to this by claiming the TPP is how ‘we shape globalization in the right way’. In late 2016, Obama’s White House estimated that Trump's withdrawal would threaten millions of jobs and more than US$5 billion in exports from the United States. The 15-year forecasted US$357 billion increase in US exports will also be vulnerable to the TPP’s collapse. Republican Senator John McCain echoed these fears, arguing that President Trump’s move is a strategic and economic disaster for the US and will only help China’s growing dominance of the region.

The political and trade vacuum emerging in Asia caused by the US withdrawal has not gone unnoticed by Beijing. Chinese President Xi Jinping’s recent visit to Switzerland has been a campaign designed to demonstrate to the world that China is ready to take America’s place as the vanguard of free trade. At the World Economic Forum in Davos, Xi Jinping praised globalisation and argued that the new phase of protectionist policies was analogous to ‘locking oneself in a dark room’. Whilst the global community should not expect China to fill in the vacuum of global leadership, Asia should brace for a rapid expansion of Chinese presence in the region. The Regional Comprehensive Economic Partnership (RCEP), which encompasses 10 members of ASEAN, plus China, India, Japan, South Korea, Australia and New Zealand, is China’s regional FTA counterbalance to the TPP.

Canberra will view the loss of the TPP as a major strategic failure that will only increase tensions between its chief ally and its biggest trading partner. Economically, however, the RCEP will be a welcome replacement to the TPP, as it represents a much bigger and possibly better deal. The combined GDP of RCEP signature states is US$22.6 trillion, compared with the combined GDP and trade with Australia of AUD$392.4 billion. Whilst TPP states did have a higher combined GDP of US$27 trillion, trade with Australia was AUD$166 billion less of the RCEP states at $AUD 226 billion. However, global gains from the RCEP are expected to be only 0.4% of global GDP, compared to the TPP potential at 0.9% of global GDP.

Failure to rebalance and contain

Obama stressed in late 2015, ‘we can’t let countries like China write the rules of the global economy’. The US pulling out of the TPP does just that and more. The RCEP will have distinctly different rules and standards than those written in the TPP. Currently, the RCEP promises to exclude any provisions concerning labour, food safety, government procurement or the environment.

Naively, as the RCEP currently lacks the depth of the TPP, it has led some to label it as complementary rather than antithetical to the TPP. It’s essential to note that trade deals rarely remain as superficial as they start. They usually always experience a spillover effect, a phenomenon that occurs when integration in one area is a co-requisite of integration in an interrelated policy area. Chinese directed spillover may see the RCEP mutate into an agreement that is simply an extension of Chinese power by other means.

Strategically, the withdrawal from the TPP indicates the end of the US rebalance to Asia, and cements losses in US soft and hard power. Economic and political withdrawal from Asia leaves the US with fewer options to continue managing China's expansion in the South China Sea and control of its ‘One Belt, One Road’ initiative. A US with fewer choices and strategic distrust of China may seek containment through military hard power, which could see miscalculation erupt into conflict.

While a situation of direct military confrontation is unlikely, one thing is certain: the RCEP has the potential to further cement China's rise as the regional hegemon and indeed its status as a global power. This future will force Indo-Pacific powers relying on both the US and China into maintaining a balancing act that will become increasingly precarious.

Chris Arnel is the International Trade and Economy Fellow for Young Australians in International Affairs.

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