He’s done it: Trump withdraws the Americans from the TPP

“He would not.”  “He’s a pragmatic businessman.”  “He would surely not do something that would cause such harm to US interests.”  “Doesn’t he realize that he would be ceding trade and economic policy to the Chinese and others?”

And we have a rapid answer:  He would and he did.  On his first working day in the White House, President Trump sent a memo to his USTR staff to withdraw as a signatory to the TPP.

The TPP is a better agreement with the Americans included.  It was designed to fit a supply chain world and to more accurately meet the needs of companies than existing trade arrangements. 

For firms, a patchwork quilt of overlapping bilateral agreements is a nightmare to navigate and use properly.  The burden falls heaviest on the smallest firms that do not have the staff to figure out how to take advantage of benefits from different agreements that offer alternate rules and provisions. 

This is why the TPP, with 40% of the world’s economies in 12 member countries, and high-quality commitments, was so promising for the United States and other member firms. 

But Trump has chosen to go down the bilateral pathway.  As his memo says, he is quite certain that this will better “promote American industry, protect American workers, and raise American wages.” 

Countries that choose to negotiate bilateral deals with Trump should be very aware that he also means to create agreements that carry out these promises—he is not at all interested in creating win-win outcomes.  He will design win-lose outcomes that put the priority at all times on ensuring US victory at all costs. 

Buyer beware.

What does US withdrawal mean for the TPP?  Members should also be quite clear that Trump will not change his mind on participation.  There is no renegotiation of the agreement that will satisfy him.  There is no way to reopen the deal, rename it, repackage the commitments and get it past his desk. 

But this is—ironically—good news for the remaining TPP members.  It provides clarity on the agreement.  The United States is out.  We are not in a situation of endless tweaking, negotiating revisions and waiting for possible approval.  Such a condition might have lasted for months or even years and left companies sitting on the sidelines forever.

Instead, with the Americans clearly out under Trump, the remaining 11 can now decide what comes next.

First up—they must ratify and complete domestic procedures to bring the existing agreement into force.  In most TPP countries, this can be done rapidly, as they have been moving ahead since the agreement was signed nearly a year ago in February 2016.

Then, they can figure out how to amend the existing agreement to accommodate US withdrawal.  As we have noted, the TPP has always envisioned entry into force with as few as 6 members.  The Americans were supposed to be one of the six, but this can be managed.

Why spend time ratifying a "dead" agreement now?  Precisely because time is limited.  No agreement at all has become a significantly worse outcome for all 11 TPP parties in turbulent economic times.

Having the TPP11 signatories default to a series of bilaterals between themselves also makes no sense.  Most of the parties already have bilateral trade agreements.  The whole point of the TPP was to knit these cumbersome deals into one deep, broad, integrated agreement. 

Unraveling the TPP or, worse, replicating TPP promises in a set of 11x11 bilaterals is nonsensical.  The TPP parties have already gone through the heavy lifting and hard slog of “getting to yes.”  They already have an agreed upon text and schedules. 

There is no time to waste on renegotiation or starting over.

The global and regional trade and economic landscape is about to get dramatically more uncertain.  In a world of increasing risk, rapid TPP implementation would provide opportunities for growth.  It would give TPP members a platform to promote investment and job growth in a world increasingly turning inward.  It sends a clear signal that TPP11 countries are open for business.

Most of the benefits of the TPP remain—even with the Americans out.  In fact, this working paper understates the case as it focuses only on market access gains from a TPP11.  The bigger benefits are likely to come from services, investment, and the broader regulatory changes found throughout the agreement. 

We have been waiting for countries to complete their domestic ratification procedures on the TPP since negotiations concluded in October 2015.  It is time to get on with implementation.

At the same time that President Trump withdrew the US from TPP participation, he said renegotiation of the North American Free Trade Agreement (NAFTA) is coming with TPP members Canada and Mexico, and renewed his threats to punish all importing firms with a major border tax.  These changes, plus a significantly enhanced set of enforcement measures aimed at “unfair” trade partners like China, will radically reshape the trade environment.  Trump is not interested in supporting a traditional US or even the Republican trade agenda. 

This is not the time for the TPP11 to embark on complicated new trade negotiation talks with one another.  It is, instead, the time to stick together and preserve the benefits that have already been captured.  The TPP11 can demonstrate what global leadership looks like on trade.  They can "walk the walk" and not just "talk the talk."