Strategic and economic challenges

Washington’s objectives share a common denominator to extend current alliance arrangements in the (non-China) East Asia to South and Southeast Asia. These efforts are not easily achievable, due to regional and national policies.

The Association of Southeast Asian Nations (ASEAN) seeks to hedge between declining U.S. influence and rising Chinese participation. It does not favor the exclusive primacy of one or another large economy. The same goes for India.

Second, national policies work against containment policies. While South Korea supports the TPP, it has strong ties with China, an independent foreign policy and historical friction with Japan. In turn, Vietnam’s regional stance relies on U.S. clout but is counterbalanced by desire to sustain expansive economic ties with Beijing.

The TPP also comes with some economic negatives. In advanced economies, critics argue that it represents the interests of major multinationals’ private interests, at the expense of consumer welfare. In emerging Asian economies, the TPP rules transfer wealth to U.S. big pharma and Hollywood and are seen as “anti-development.”

Second, the TPP bloc is not inclusive. It excludes the three largest emerging economies of the 21st century: China (East Asia), India (South Asia) and Indonesia (Southeast Asia). That does not serve the future of the TPP, the region or the U.S.

Third, the TPP represents preferential rather than free trade and it is punitive to non-members. It may entrench protection in certain key areas, especially agriculture. And thanks to defensive geopolitical stances, current sheltered sectors – Japanese rice, U.S. sugar – may prove even more resistant to change.

As the TPP imposes standards and rules that are inappropriate to the stage of development of emerging economies, it has potential to freeze rather than speed up their development.

Future scenarios

While a deal proved elusive in Maui, the talks will continue. What are China’s TPP options in the near future?

Beijing is internationalizing via huge regional initiatives (e.g., Asian Infrastructure Investment Bank, New Development Bank, the One Road One Belt initiatives) and via bilateral free trade agreements (FTAs), with TPP members Singapore, Chile, Peru, New Zealand and most recently with Australia. There are also overlaps between TPP and the Regional Comprehensive Economic Partnership (RCEP), which is led by China with half a dozen TPP members, including Japan.

China may join the TPP at a later point but only when it makes economic and strategic sense. As liberalization proceeds in its economy, Beijing may gain similar benefits through a free-trade area of the Asia Pacific, which would offer far more significant benefits than the initial TPP.

What about Washington’s TPP options? Before Maui, the Obama administration touted the meeting as a make-or-break moment because it is subject to the 60- and 90-day deadlines by U.S. trade law and the recently-passed Trade Promotion Authority legislation, in which the White House relied on Republican support.

The Obama administration needed an agreement in Maui to notify Congress in early August of the president’s intention to sign the TPP and so that the agreement could be published by mid-September. Given these two timelines, the White House hoped to sign the agreement at the Asia-Pacific Economic Cooperation (APEC) meeting in Manila around mid-November, which would have been followed by congressional vote within 90 days – by February 2016.

The optimistic TPP scenario is now history. While the agreement may still materialize in some form, it is about to be trumped (all puns intended) by the U.S. presidential politics; the Fed’s impending rate hike, which has potential to further divide U.S. allies (especially emerging economies); and the expected rise of the Chinese renminbi to a major reserve currency, which heralds de-dollarization in the future.

When and if the TPP will be completed, economic gains will be moderate. However, a TPP without China would have substantial geopolitical implications.

Truly inclusive, free trade is a different story. But that’s not what the TPP is about.

Dr Dan Steinbock is a columnist with China.org.cn. For more information please visit: http://www.h5a3.com/opinion/DanSteinbock.htm

This article was first published at Chinausfocus.com To see the original version please visit: http://www.chinausfocus.com/finance-economy/the-trans-pacific-divisions/