As American foreign policy shifts towards isolationism and protectionism, I think it’s important to discuss some of the effects this policy will have. This isn’t an exhaustive list or even a complete analysis of the one topic I want to cover TPP and China. It’s meant to begin a conversation and to document my ideas and thoughts on the topic.
The United States of America (USA) hasn’t been significantly challenged in the last forty years. We viewed the Cold War, against the Soviet Union and Communism as a battle for the future of earth and democracy, but in hindsight, it was little of either. The Soviet Union’s technology, policies, and economic might were far from what we exalted them to be. They found, in a select few countries, opportunities to push policy and make changes. The United States treated these as onslaughts against democracy, but again that wasn’t the case. The countries communism succeeded in were crony capitalist at best, and at worst dictatorships pretending to be elected democracies. When reviewing the global landscape, there isn’t a close second competitor to the US. Our 320 million citizens and a GDP of approximately $20 trillion are in a league in and of itself. Our closest competitor is the entire European Union, with 502 million citizens and a GDP of $17 trillion. Their power, as one union, is still diffused by not being a true single entity. Our other competitors, China and Russia, don’t come close to the US in GDP and military might, despite China’s significantly larger population. By standing in a class of our own, we can protect our position by continuing our policies, but ensuring the nation moves in the path that has made us successful in the first place. We need to continue our streak of innovation, improve the quality and education of our workforce, and generate the ideas that drive the world.
Recently China has been making a transition from a purely manufacturing economy to a value-added economy by designing their own products and services for export. Their technology and finance industries are now showing their power by flexing their balance sheets globally. This is a difficult pivot, from manufacturing to services, and China has largely done it on debt. It’s manageable, with 6.5% annual GDP growth, but is risky. The US had an opportunity to increase that difficulty and risk for China through the TPP and has now elected not to take it.
The Trans-Pacific Partnership, TPP, was between the United States and twelve other countries, primarily in Asia. China was not one of these countries, which is a key fact. China is a regional powerhouse and dominant in the global export and manufacturing markets. With TPP, exports from China would become relatively more expensive compared to other SE Asian countries. Manufacturing, especially for price sensitive products, would migrate to the smaller countries, like Vietnam. To the US, this may not have a positive or negative effect, as the imports would be coming from another country, but still wouldn’t be made in the US. If there’s any effect, imports may be less expensive. As manufacturing jobs shift from China to other countries, a few effects happen. First, the US gains stronger economic ties in the Asian region. Countries with historically shaky diplomatic ties, like Vietnam, now become stronger allies and we grow closer to existing partners like Australia. Secondly, China’s power is now diffused among several smaller countries, with competing priorities, thereby limiting global risk. One country boycotting others, devaluing currencies, or using trade flows to empower itself in the region is significantly weakened by the size of the countries and the relative impact TPP has. No one country can have the effect China has now. While these two effects are occurring, China will be forced to deal with their new reality of lower manufacturing output, GDP, and employment. This won’t stop China, at least for long, but does work at limiting China’s global power and clout in SE Asia.
The US decided the TPP was against its priorities, though. The threat of further domestic manufacturing job losses proved too great for voters, who pushed both candidates, Hillary and Donald, to promise to vote against the partnership. So instead of what was potentially a strong-armed tactic to support continued global dominance, we’ve done nothing in the region except lose face, as Singapore kindly put it. As soon as we voted the partnership down, those looking saw exactly what we all should’ve expected. China went to every TPP country and is now participating in ongoing trade discussions, ensuring them that while the US can’t stomach free trade, it can and will. China didn’t stop there, though, they’ve pushed this story in Africa, South America, Central America, and all the way to the US borders in Canada and Mexico. With one vote, we let China show the world a new global powerhouse was available for negotiations. Since the end of WW2, the United States has pushed for open borders, free trade, and the democracy that accompanies these two ideas. Now, China gets to play moral leader and can clearly demonstrate the benefits trade has had on its economy and workforce.
The Trans-Pacific Partnership may not have been the best trade deal we’ve ever seen. It was net positive for US GDP and jobs, but that does little to comfort America’s blue collar workers. In the long-run, I think we will lose more than we protected, both in terms of jobs and global diplomatic power. Welcome to the table, China.