COVER STORY by Colin TeeseNews Weekly
Don't grieve dumped TPP; rather, thank Trump
, February 25, 2017
Prime Minister Malcolm Turnbull’s first reaction to Donald Trump’s election was to express hope – even expectation – that the incoming U.S. President would not kill off the Trans-Pacific Partnership (TPP), so called. However, the incoming President proved as good as his word. Almost immediately after taking office Mr Trump issued an executive order effectively proclaiming the TPP dead.
Donald Trump is in the change business, and getting rid of the TPP is an element of that change. Our Prime Minister and a great many other Australian so-called experts and media commentators seem incapable of accepting that reality. What they refuse to acknowledge is that Mr Trump regards the business model still favoured by most Western economies as in serious need of revision.
Free trade ideology: not derelict.
Preferential trade deals: not shonky.
The new thinking in the United States is being driven by Mr Trump, and those he has gathered around him. Sooner or later, given our relationship with the U.S., we too will need to change; in directions which deviate from what has become the prevailing orthodoxy.
Our PM’s response to the President’s executive order seems to suggest a shortfall in his understanding of the TPP. China, Mr Turnbull suggested, might be persuaded to take on the leadership role vacated by the United States. He seems to believe that breathing new life into the TPP requires nothing more than a change of leadership.
That suggestion misunderstands the real purpose of the TPP. Japan, which understands completely what the TPP is all about, dismissed the idea out of hand.
That Mr Turnbull believed he was not in a position to share with Australians the TPP’s real purpose, is of course defensible on national security grounds; but there must be real concern if he believes that the central purpose of the deal was to advance our commercial interests and the wider purpose of free trade.
As has been widely observed, the deal was never about trade, free or otherwise. It was part of the Obama administration’s unstated “contain China” policy. Behind it stood the notion that facilitation of trade diversion – between the U.S. and its various Asian partners, and away from China – would help impede China’s ability to grow. Thus would China’s capacity to supplant U.S. power in the Asian region be curtailed. Properly defined, the TPP was to be a servant of geopolitical power projection.
Interestingly, the new President has precisely the same unstated objective as had Barack Obama, though he has chosen a different pathway. One would have hoped that those of our leaders pushing the TPP would recognise the differences of approach and the reasons behind them.
Elites have chosen to make a connection between Mr Trump’s election and Britain’s decision to leave the EU. “Populism” is the word that has been fashioned to describe it. The word has only limited utility; indeed, in some hands, it has become a justification for questioning the outcome of democratically held elections.
More charitably, we might grant that Mr Trump and British Prime Minister Theresa May are experimenting with fundamental changes of policy direction in an effort to move away from what they see as flawed business models. Brexit and what flows from it being the trigger for Mrs May; businesses and economic power going offshore for Mr Trump.
Both are convinced that they must deal with the consequences these pose for domestic and political policy, in particular the fact that ordinary people have been dealt out of the prosperity equation. Understandably, those trying to hold on to what they have will see these changes as chaotic and perhaps revolutionary.
Certainly, Mr Trump and Mrs May are moving away from the fundamentals of their predecessors, which perhaps explains why they got on well at their first meeting.
On China, for example, Mr Trump is no Obama. Mr Obama saw China’s rise as a geopolitical challenge to U.S. influence in Asia, though not necessarily connected with domestic economic questions. His solution, the TPP, Mr Trump saw from his perspective of domestic political and economic considerations, as part of the problem.
We will never know whether the Obama indirect assault on China’s trading prospects in Asia would offend China more than the “head-on” approach Mr trump has adopted.
What we do know is that Mr Trump’s concern is the impact of the growth of China on the U.S. domestic economy. He identifies two problems: first, the loss of U.S. jobs; and, second, the movement of U.S. businesses offshore in order to take advantage of cheap Chinese labour. He is committed to reversing these trends, by wide-ranging policy proposals – including domestic tax changes – and what looks like a reversal of the Republican Party’s commitment to free trade.
The contrast with his predecessor’s approach could not be more acute.
All of the above is by way of trying to put what has happened to the TPP into some kind of context. It is obvious that in the run-up to the U.S. election, Australian business, much of academia and the media spoke favourably of the beneficial trade effects of the TPP, and were fearful of a Trump presidency terminating it.
Mr Trump’s opponent also expressed half-hearted opposition to the TPP in the dying months of the campaign, but U.S. voters apparently weren’t impressed.
Back here in Australia, notwithstanding the views of orthodox opinion, a careful evaluation of the TPP could conclude that we owe Donald Trump a debt of gratitude for killing it off.
First, had the TPP come into effect, it may well have become a serious strategic problem for Australia. We know that China has reacted negatively to Mr Trump’s tariff proposals on Chinese imports. But if I am right and the TPP would have had the same effect as Mr Trump’s tariffs, then it is better for us, given our dependence on China, that Mr Trump’s proposal goes ahead rather than the TPP, since we are not associated with it.
By burying the TPP, Mr Trump is – for the moment – relieving some of the strain we have had in balancing our commercial interests in China with our strategic links with the United States.
All of that being said, can we take at face value the benefits the Government has claimed we have lost as a result of the demise of the TPP?
Benefits of trade deals sparse or worse
Before considering that, let’s have a general look at the preferential trade agreements we already have. The first thing to note about them is that none of them is in line with commitments we have undertaken in the World Trade agreement – because they are selective in application. They do not cover all the trade.
A few years ago Parliamentary Library researchers looked at our preferential trade agreements and concluded that none could be shown to have benefitted Australia to any great extent. By far the largest of them, the U.S.-Australia agreement, concluded in the Howard years, has been the most harmful for Australia. We gained little in terms of better access for our agricultural exports and paid a heavy price in other areas. As to manufactures, of which the U.S. already had a huge trade surplus with us, the trade agreement allowed the U.S. to increase that surplus.
Worse still, we gave concessions to the U.S. on pharmaceutical imports that had the effect of denying us the opportunity to source our needs more cheaply. According to an ANU researcher, Thomas Faunce, that deal was a major contributor to the 80 per cent blowout in the cost of our Pharmaceutical Benefit Scheme (PBS), which added significantly to our present budgetary problems.
And remember, the deal on pharmaceuticals was not about free trade, but about protecting the U.S. pharmaceutical industry.
The Productivity Commission, itself a strong supporter of so-called free trade, has been very critical of preferential agreements; largely on the ground that they distort rather than increase trade. It has warned our Government that they usually have been of little benefit to Australia.
Needless to say, the Government chose not to allow the Productivity Commission to assess the TPP before committing Australia to it. Worse than that, it refused to reveal its content for any public scrutiny until the negotiated document had been put to Parliament. And for good reason. The World Bank did have a look at the document and concluded that its benefit to Australia would amount to no more, in trade terms, than 0.1 per cent a year.
But that is not all. By far the worst point of the agreement was the clause that gave foreign-owned companies operating in Australia the right to challenge, before a TPP internal tribunal, any action (including legislative action) that the company believed adversely affected its commercial interests.
If the tribunal found in the company’s favour, it could determine a financial penalty against the government to continue until the government ceased to apply the action.
This could have meant that a company operating in our jurisdiction could prevent our government legislating on, say, health grounds, if that action adversely affected the commercial interests of the company.
Quite properly, some U.S. commentators have pointed out that this encroaches on sovereignty. Furthermore, it extends the reach of private property far beyond anything previously known.
For that reason alone we might conclude that Mr Trump has done us a massive favour.