Published 07 February 2023
The quest for continued US economic leadership is bound to fail if Americans naively think that all they need to do is to try to out-spend China or double down on defensive actions that restrict trade and investment. To the contrary, breaking down trade barriers is a critical part of the formula for success. By modernizing the CPTPP, it's possible for the US to rejoin the agreement.
Bipartisan consensus over China
In the midst of an increasingly politicized climate in Washington, D.C., there is one issue that appears to unify policymakers more than any other – China. In particular, the Biden administration and lawmakers across the American political spectrum are focusing on how to develop and implement a strategy to counter the economic aggression and national security ambitions of the Chinese Communist Party (CCP).
Key Biden advisers including Jake Sullivan and Gina Raimondo have increasingly emphasized China on numerous occasions, primarily highlighting the need to increase US subsidies for critical technologies and take defensive actions to protect American leadership in tech innovation. This includes increased spending on semiconductors and other advanced technologies, groundbreaking export control measures, and continued work on a novel outbound investment screening mechanism, among other priorities.
Republicans in Congress are keeping pace. In fact, one of the first actions of the new Republican majority in the House was to establish a Select Committee on China. According to Speaker McCarthy and Committee Chair Mike Gallagher, the Committee’s priorities include ending critical supply chain dependence on China, strengthening the US military, countering the CCP’s theft of American data and intellectual property, and contrasting China’s techno-totalitarian state with values of the Western bloc. Together, these policies appear aimed at ensuring US economic, national security, and geopolitical leadership over China into the future.
Many Americans likely share policymakers’ concerns about China and applaud their recent level of ambition on this issue. However, the quest for continued US economic leadership is bound to fail if we naively think that all we need to do to achieve our goals is to try to out-spend China or double down on defensive actions that restrict trade and investment.
To the contrary, breaking down trade barriers to trade is a critical part of the formula for success. This in turn helps fuel our economic growth and link our supply chains with allies instead of China. And nowhere is this more important than the Indo-Pacific region, which is the fastest growing in the world.
Is CPTPP key to regaining US leadership in APAC?
Enter the Trans-Pacific Partnership (TPP). The strategic wisdom of the deal hasn’t changed. When the Obama administration first conceived of this agreement more than ten years ago, its objectives were quite similar to what is needed today. The Obama administration believed that TPP offers a way to break down barriers to US exports in the region, promote US standards over Chinese alternatives, and ensure that the United States can counter China’s economic influence in Beijing’s backyard. However, the TPP ran into strong domestic opposition, and the United States withdrew from the agreement in 2017.
Six years later, that decision still haunts us. Many of our closest trading partners question our commitment to the region and have used the last few years to strengthen their economic relationship with each other and with China instead of the United States. For example, the other 11 TPP members have moved on without us and established the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Likewise, China successfully concluded the Regional Comprehensive Economic Partnership (RCEP), a 15-nation Asian trade pact that cuts tariffs, harmonizes standards, and establishes rules of trade between its members.
As a result of the CPTPP and the RCEP, the United States is less competitive and less influential in the region. American exporters continue to face high tariffs on a range of manufacturing and agricultural goods in CPTPP countries, while tariffs are being reduced or eliminated among members of those groupings. Countries in the pacts are also aligning regulatory policies and standards in ways that disadvantage key US products such as medical equipment and chemicals. Additionally, the United States has forfeited an important opportunity to promote its values and effectively shape rules related to labor and the environment.
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To its credit, the Biden administration has at least recognized that there is a problem and has initiated negotiations on the Indo-Pacific Economic Partnership (IPEF). Unfortunately, IPEF suffers from a major deficiency in that it does not include the kinds of tariff cuts that are included in both the CPTPP and RCEP. In other words, the IPEF will do little to counter the incentive provided by the CPTPP and RCEP for countries and companies to link their supply chains with each other, and with China, instead of the United States. At the same time, without such market access provisions, the United States is also deprived of a key source of leverage to persuade participants to adopt higher labor and environmental standards.
To put things back into the context of the current debate on China, if US policymakers are serious about wanting companies to relocate critical supply chains from China, then a true trade agreement with real incentives to do so must be a part of the agenda. Similarly, if the US wants to retain innovation leadership while adopting numerous measures to limit the amount of business its companies can do in China, it must open up alternative markets for our companies to make up the lost revenue that is so critical for further research and development. All these imperatives point in the direction of a return to TPP.
Although there are very strong reasons to revive TPP, it is important to note that many of the concerns about the original agreement that helped sink it in 2017 are legitimate. The CPTPP’s rules of origin on the automotive sector would allow significant Chinese content in vehicles shipped duty-free to the United States. Its labor and environmental provisions fall short of more recent agreements such as the United States–Mexico–Canada Agreement (USMCA). And the CPTPP fails to adequately address non-market economy practices. Additionally, many of its provisions are dated and do not reflect more recent innovations in the global economy such as the growing prominence of digital trade.
Therefore, the question for US policymakers to consider is not whether to join the CPTPP as it stands but whether we can modernize and reform the agreement in a way that makes it possible for the United States to rejoin.
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I strongly believe that the answer is yes. Along with my Democratic co-lead Wendy Cutler, I have worked closely with a bipartisan group of trade experts and engaged with numerous stakeholders across the political spectrum to determine how to modify CPTPP to ensure it meets US economic objectives and to build a domestic political consensus in support of re-entry. We have also spent hours with current CPTPP members to ensure our ideas were not non-starters.
US re-entry into the CPTPP
In light of these extensive consultations, we developed a bipartisan paper outlining our recommendations for CPTPP improvements in a series of areas. The recommendations we provide are not intended to be US negotiating demands, but to help facilitate a long overdue conversation in the United States about whether re-entry is possible. More specifically, we recommend:
- Improving CPTPP rules of origin, especially on autos and trucks.
- Strengthening labor provisions to ensure a level playing field.
- Bolstering provisions to better protect the environment.
- Modernizing rules to address anticompetitive behavior from non-market economies.
- Strengthening provisions to combat currency manipulation.
- Adopting a targeted approach to investor-state dispute settlement obligations.
- Applying a flexible approach to government procurement rules.
- Modernizing rules to reflect advancements in digital trade and promote digital inclusiveness.
- Enhancing fairness in intellectual property rights protection and enforcement.
- Embedding supply chain security and resilience into the agreement as a new chapter.
- Adopting collective approaches to address economic coercion.
- Incentivizing members to review and improve the agreement over time.
Overall, the feedback we have received has been extremely positive. We have heard from numerous Members of Congress who are interested in trying to make an Indo-Pacific trade agreement part of their 2023 agenda as well as from many current CPTPP participants who desperately hope that the United States will seriously consider such an initiative. Further, major news outlets like the Washington Post have also weighed in, agreeing that “America needs a better China trade strategy” and arguing that our paper provides a roadmap for leaders interested in repairing the current strategic deficiency in US trade policy.
Despite this, the path back to CPTPP will not be easy. There are still high political hurdles to overcome and the Biden administration – at least for the time being – has shown very little interest in trade agreements. However, there is hope that over time the conversation we are attempting to start will get the Biden administration and Congress to seriously consider how to fix this crucial agreement instead of ignoring it, despite the key role it can play in an effective China strategy.
After all, despite all the hand-wringing about the unpopularity of trade in the United States, there is very recent precedent to suggest that the American people and policymakers support trade agreements done right. Only a few years ago, the North American Free Trade Agreement (NAFTA) was seen as an economic calamity by many.
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Today, the renegotiated version of the agreement is heralded as a model for the future of trade policy crafted on a bipartisan basis. Just as Democrats and Republicans came together to support the USMCA, we can again come together to do the same with a revised CPTPP. This is a key missing ingredient in the current China strategy, and necessary to retain US economic, national security, and geopolitical leadership.
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Author
Clete Willems
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