Trump U-Turn on TPP May Help Him Win Allies in China Trade Fight

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(Bloomberg) -- President Donald Trump’s move on Thursday to put the Trans-Pacific Partnership back on the agenda shows that he may have a new appreciation of the trade pact’s strategic value as he threatens tariffs on China.

Trump had withdrawn from the agreement during his first week in office, citing threats to American workers. Eleven other nations in the Asia Pacific, including key U.S. allies, completed the deal last month.

The current version of the TPP promises strong protections for intellectual property, expands free-trade rules beyond agriculture and services, and embraces the digital economy. More importantly, it represents the most significant effort to push back against the state-dominated economic model that underpins China’s growing clout.

"If Trump wants to isolate China, he needs cooperation from many other allies," said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets Hong Kong Ltd. "The opinion right now in Washington is: Let’s get along with other guys, bring Japan, Europe and other guys on board to go after China. The U.S. gets back to setting the rules for the global economic order rather than letting China set the rules."

TPP, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, includes nations such as Canada, Mexico, Peru, Japan, Singapore and Australia. Japan -- the biggest economy among the group -- hopes it will come into force next year after it is ratified by signatories.

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China has been in talks on another trade agreement called the Regional Comprehensive Economic Partnership, which is less far reaching in scope than the TPP. Negotiations have faltered since the first round of talks in 2013, though India and Southeast Asian nations agreed in January to "intensify efforts in 2018 toward the swift conclusion" after missing previous deadlines.

U.S. policy makers have long seen the TPP as a key component of America’s efforts to counter China. In 2015, former Defense Secretary Ash Carter compared the trade pact to an aircraft carrier in securing American interests in Asia.

Still, with Trump it’s hard to tell if his latest statement amounts to a policy shift. He took a shot at longtime ally Japan in a late-night tweet Thursday clarifying his stance on the TPP, saying the nation “has hit us hard on trade for years!”

©2018 Bloomberg L.P.

With assistance from Kevin Hamlin

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