As New "Trump" Reality Sinks In, Questions Grow Over Future Trade Policy

17 November 2016

Just over one week after the news that Donald Trump will serve as the next president of the United States, key trading partners are working to prepare for the change in leadership in the world’s largest economy, even as many of the incoming official’s policy priorities remain unclear.

Trump’s unexpected win last week initially sent shockwaves both within the US and across the world, particularly given both poll predictions in favour of his opponent, Hillary Clinton, and also in light of the radically different approach to policy and politics that the real estate mogul promoted on the campaign trail relative to his recent predecessors. (See Bridges Weekly, 10 November 2016)

Outgoing US President Barack Obama has repeatedly called for a smooth transition of power, which has been the hallmark of presidential handovers, even between administrations from different political parties. Trump has also called for unity, which has been echoed by congressional leaders of both parties, even as top Republicans and Democrats have already been openly clashing over how to approach the incoming administration and its stated values, team members, and policy plans.

TPP partners attempt to regroup

Amid the tumult in Washington, one key issue for many of the US’ trading partners will be the ultimate fate of the Trans-Pacific Partnership (TPP), a 12-country deal that was concluded under the Obama presidency and is now in the ratification stage. Trump said repeatedly on the campaign trail that he would pull the US out of the Pacific Rim accord should he become president, with questions now being raised over whether he will make good on this pledge.

While Obama Administration officials had suggested that they might still be able to push for the TPP’s ratification during the “lame duck” session of Congress before the transition next January, US congressional leaders have put a damper on that idea, pledging that no such vote will be held during that period.

Some TPP officials, such as Australian trade minister Steven Ciobo, have suggested their continued hope that there could be some way to preserve the advances made under the 12-country accord, while acknowledging that the election results have complicated matters.

“I mean it’s not definitely dead in the water although increasingly it would appear unlikely,” he told Sky News on 15 November, according to a transcript of his remarks provided by his office. “Now that opportunity would appear unlikely to now be realised, but we have other pokers and other fires.”

The TPP had been one of Obama’s top policy priorities in Asia, both in terms of cementing the US’ relationships in the region, as well as allowing the North American economy and its Pacific Rim trading partners to pursue rules that proponents say are some of the most advanced seen under any deal – particularly in areas such as labour rights and environmental protections.

However, the deal has faced harsh public scrutiny in the US, particularly during the election season, given that both Trump and Clinton had opposed it.

“Now I made an argument – thus far, unsuccessfully – that the trade deal we had organised, TPP, did exactly that, that it strengthened workers’ rights and environmental rights, levelled the playing field, and, as a consequence, would be good for American workers and American businesses,” said Obama at a press conference on 14 November.

However, the outgoing US leader acknowledged the difficulties and nuances of making such an argument to the American public, particularly given concerns of jobs being moved abroad and manufacturing plants at home shutting down.

Indeed, the election has highlighted the deep-seated divisions among the American public on the economy and a host of other topics, including on environmental and social policy, which are unlikely to dissipate anytime soon.

At a separate event this week, Obama warned that the policy prescriptions of his incoming successor may not yield outcomes that will actually answer the concerns over growing economic inequality and lost competitiveness that many of Trump’s supporters have raised.

“Time will now tell whether the prescriptions that are being offered – whether Brexit or with respect to the US election – ends up actually satisfying those people who have been fearful or angry or concerned,” said Obama in Greece during the first leg of his final European tour as president. He also argued that the policies under his own administration had ultimately been the “right ones” for the American economy.

Given this context, Obama is due to meet with fellow TPP leaders in Peru later this week, on the sidelines of an Asia-Pacific Economic Cooperation (APEC) gathering being held in Lima. White House officials say that the US president will be aiming to discuss with his counterparts what may come next in light of current events.

“Obviously we recognise the recent political developments in our country and how that affects TPP, but that's all the more reason for the President to discuss with other TPP leaders the work they’ve done together and how we’re looking at issues related to trade going forward,” said Ben Rhodes, Deputy National Security Adviser for Strategic Communications, in a phone call previewing the trip.

Peruvian President Pedro Pablo Kuczynski has reportedly suggested that the other 11 TPP signatories could go it alone, if need be. Indeed, some commentators such as Brookings Senior Fellow Mireya Solís have said that the existing TPP players could seek to move forward on the accord without the US.

However, officials from other TPP countries such as Australia’s Ciobo say this is less likely, noting that losing a major economy like the US “fundamentally alters the various considerations that countries have.”

Japanese Prime Minister Shinzo Abe is due to meet with President-elect Trump this Thursday, with analysts widely expecting the discussions to include a push by the Japanese premier for the incoming US leader not to abandon the 12-country trade deal.

Meanwhile, another trade-related campaign promise of the president-elect was that he would seek to renegotiate the North American Free Trade Agreement (NAFTA) – and that if Canada and Mexico were not willing to do so, or would not agree to his terms, he would be ready to pull the US out of the decades-old accord.

Canadian Prime Minister Justin Trudeau said last week that he would be open to discussing changes to the 1994 deal. “If the Americans want to talk about NAFTA, I’m more than happy to talk about it.”

Mexican officials, for their part, have also suggested an openness to discussing the upgrade of the deal.

EU officials: TTIP going on hold

Trump’s win last week has also raised questions over how he will approach relations with one of the US’ top diplomatic and trading partners – the European Union – in areas as wide-ranging as national security and economic ties.

While many EU leaders hinted that the election result was a surprise, and not necessarily an ideal one, they generally pledged that they would aim to keep strong ties with the US on the basis of shared values and the larger international importance of their long-term alliance

“Irrespective of the outcome of the election, I firmly take the view that we have to do our utmost to keep the transatlantic relationship on track,” said European Commission President Jean-Claude Juncker on 9 November in Berlin.

“Our common values are at stake. And these common values must be strengthened. And when they are threatened, we must talk eye-to-eye with those who might seek to threaten them,” he continued.

Among the many questions that the 28-nation EU has for the US involves how an incoming Trump Administration may address the Transatlantic Trade and Investment Partnership (TTIP), another initiative that was launched during the Obama Administration.

The planned deal between the US and EU is aimed at lowering market access barriers and regulatory hurdles, along with further cementing an already deep economic relationship. The negotiations kicked off over three years ago, but have lately struggled to advance, with the two sides ultimately abandoning their earlier plans to conclude a deal under the Obama presidency. (See Bridges Weekly, 13 October 2016)

Speaking to reporters on Friday, EU Trade Commissioner Cecilia Malmström suggested that there would be a “natural pause” in the talks, with the EU ready to continue negotiations when the US is ready to do so.  During the remaining weeks of Obama’s term, the US and EU will be undertaking the technical work necessary to preserve as much of the progress made as possible during the 15 rounds of negotiations.

“For quite some time, TTIP will probably be in the freezer. What will happen when it’s defrosted, I think we’ll just have to wait and see,” she added.

Furthermore, she added, the US president-elect “has not one single time in his election campaign or before mentioned, [or] made any reference, to TTIP, so we don’t know what he thinks about TTIP.”

Indeed, the positions Trump might take on any existing Obama trade initiatives aside from the TPP are largely unclear, though he has made public his scepticism of major multi-country accords, stating that he prefers bilateral deals with individual countries.

What this may mean for two other initiatives launched in recent years – the Trade in Services Agreement (TISA) and the Environmental Goods Agreement (EGA), both aiming for conclusion this December – is also not yet known, sources say.

ICTSD reporting; “Abe to Meet Trump to Press Japan’s Case on Security and Trade,” THE NEW YORK TIMES, 10 November 2016; “Abe: TPP difficult to put into force,” JIJI PRESS, 14 November 2016; “A TPP without the US? It’s being suggested, NIKKEI ASIAN REVIEW, 13 November 2016; “Trump talks tough on trade has at least one NAFTA member willing to play ball,” CNBC, 12 November 2016.

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