As a direct consequence of Donald Trump being on his way to the US presidency, already two important trade deals have gone down the drain, trade deals which perhaps would have meant an opportunity for US investors overseas and perhaps would have created thousands of jobs in the USA, at least for those US production facilities involved in the exporting business.
In order to make good on a promise candidate Trump made during his campaign, the one about creating a lot of well paying industrial jobs in the USA, a promise made to all those who live in the Rust Belt as well as many of the Midwestern hillbillies , in a YouTube video president elect Donald Trump formally announced yesterday that during his first day as president one of his first actions would be issuing a note of intent to withdraw the USA from the Trans-Pacific Partnership “from day one”, showing no moderation from his anti-globalization and protectionist rhetoric despite what many naïve observers thought would be a softening in his radical positions following his election victory speech.
Previously, one year ago, on October 5, 2015, Canada, the United States, Mexico and nine other countries – together representing more than 40 per cent of the global economy – announced the conclusion of negotiations on the massive Trans-Pacific Partnership “free trade” deal. The list of twelve countries joining as members in the TPP were at the time:
- Singapore
- Brunei
- New Zealand
- Chile
- United States
- Australia
- Peru
- Vietnam
- Malaysia
- Mexico
- Canada
- Japan
The world gets ready for the Trump era. While awaiting his first decisions, the key countries of the planet, those who grow the most, meeting in the Asian-Pacific summit got together in Lima with a clear warning to the United States: if the new leader puts a halt on free trade, they will keep on moving forward, but without him, and will reach agreements that will leave him isolated.
“We will not close up, we will open up even more”, stated yesterday the Chinese leader Xi Jinping, in response to the protectionism of the Republican. During the talks, the possibility of new alliances without the United States grew, with the almost full certainty that the United States will stand up and leave from the most important agreement. While Barack Obama, unable to change course, gave farewell to the summits.
These two currents did not clash in Lima, since Trump didn`t go, but it appears evident that such conflict is about to explode as soon as the Republican takes office in January.
The tension was evident in the messages of some of the leaders. John Key, Prime Minister of New Zealand, summed up with clarity the general feeling.
“We can renegotiate the TPP (Transpacific Pact) to make it look good to the eyes of Trump. If the USA does not want free trade, the rest of us will keep going ahead, because we believe in it”.
In private, the meetings went forth through the route of opening up the free trade agreements, even alternate to the TPP, that was headed by Barack Obama and which left out China, according to Peruvian sources.
The Asian giant is the great spotlight grabber in the summit, because it is the number one enemy of Trump -or at least he said so during his campaign-, and plans to defend itself with his Asian and Latin American allies taking up a bigger presence in the region.
Xi promised to reduce Chinese protectionism as a reply to Trump and worked in Lima to promote an agreement alternative to the TPP, headed up by Peking.
“We will open up ourselves even more. We will open up a bigger playing field for Chinese and foreign enterprises. International ventures will be able to share the growth of China and its opportunities.
“We will involve ourselves in the globalization to promote a shared growth, we need to accomplish a sharing of the benefits of development with better redistribution mechanisms. We will make the pie bigger and share it better”, stated Xi Jinping after glossing the benefits of free trade.
One by one, the presidents spoke in such a sense, with a repeated message to Trump, the big absent.
“We need to send a strong message, these 2 APEC countries must send an unequivocal message to the world that commerce continues to be precious to world growth.
“If the USA does not want the TPP we will forge an Asian-Pacific agreement without the United States that will include China and also Russia”, said the host, the Peruvian Pedro Pablo Kuczynski.
While Obama, who also went to Lima, opted for a lower profile, and instead of intervening in public at the summit, the day in which Xi and the Russian leader Vladimir Putin spoke, he went to a university to chat with young Peruvian entrepreneurs.
Obama had discreet contacts with the leaders but, while leaving, avoided a public response to those invectives of the other world leaders against the possibility that the USA embraces protectionism.
The APEC summit has turned itself into an uncomfortable space for Obama, who will have his last chance of being face to face with Putin after the tensions of these past years and was also looking forward to meeting with the Chinese Xi.
Besides, he would meet with the 12 world leaders who have added up to the TPP, the great agreement that left out China, but cannot tell them if Trump will go forward with it. The most probable scenario, according to the American news media, is that the USA will be left out of the agreement. Therefore Obama cannot do more in this summit than to ask for time to see what will be the first decisions taken by Trump.
From the tone of the APEC meeting in Lima, it appears that some of the world leaders involved in the free trade negotiations have a very low opinion of the hundreds of thousands of Midwestern hillbillies who voted for Donald Trump putting him in the Oval Office, almost as if saying: “They don't come any dumber than that”.
One thing is clear from the above article. President Obama, who had managed to exert enough diplomatic pressure to keep China out of the TPP, was no longer in any position to keep China out of a TPP-style deal, nor ask for anything in return which would be trade beneficial to the USA. With the USA completely out of the TPP free trade deal, China is now in a position of strength to join a club made up of several countries in what may end up being one of the most important free trade deals in modern times. Even Russia is now being considered to join in the club! The following photo taken at the APEC summit in Peru proves it:
Let us now recall a little bit of world history.
Ever since the USA was founded, its economic philosophy was based on a free market economy with as little government intervention as possible, the so-called laissez-faire school of thought. Indeed, it was the embracement of this economic philosophy, so deeply ingrained in the roots of the USA, that carried the USA and a good part of the world to a Cold War with the opposite school of thought, the dreaded Communism.
The USA, especially after World War II, exported many goods and services to the rest of the world, benefiting and growing from the free market economy model. And all these goods and services, carrying the “Made in the USA” label, created millions of jobs and contributed to its prosperity. But with the USA closing itself up under Donald Trump, China which was already poised to become the first world economic superpower, first world economic superpower, is more than ready and willing to fill in the TPP gap left by the Trump presidency and the new-USA he will be leading. The American Midwestern hillbillies cannot even fathom what the consequences of this major shift in economic dominance will mean for them and their offspring. But they may find out soon enough.
The USA, by choosing to put a man such as Donald Trump in office (the question of Hillary Clinton winning the popular vote is now rhetorical and for all practical purposes useless) has chosen to be out of the free trade deals game. It all things proceed as anticipated, the USA will be completely left out of the multi-trillion dollars in business that the international trade agreement known as TPP represented. From the point of view of the TPP members, the USA is no longer a player and has ceased to exist, at least for what the TPP represents. A good way to put this in perspective is by considering the Olympic Games. If president Donald Trump demands the International Olympic Committee to ban Iran -a country whom he hates- from the Olympics or else the US government will pull the USA out of the Olympics for good, it is very unlikely that the IOC will abide by Trump`s wishes, and most certainly it will respond very simply by saying: “If the USA wants to abandon its participation in all future Olympic Games, the door is wide open, and the US can leave at any moment”. And if Donald Trump makes good on his threat, the Olympic Games will still be held right on schedule, both the Summer Olympics and Winter Olympics. Gold medals and silver medals will still be awarded to the best athletes, but none of those medals will be going to any US athlete, something which would make Russia and China very very happy for they would grab a lot of those medals once the USA is absent. Not even any bronze medals for any American athlete! The USA loss would be a total loss for the USA. It is not the rest of the world who may end up losing if the USA gives up on its participation on the Olympics, it will be the USA which will end up hanging itself if it does so, much to the chagrin of young American athletes aspiring to leave their imprint in history. And the USA could even end up losing some of its very best athletes if they decide to give up their no longer useful US citizenship in order to compete under the flag of another country and claim the gold and silver medals they have trained for all their lives. There is no harder punishment for being left out completely than to take oneself completely out of the courtyard and see everybody else join in the celebrations.
The TPP was considered so important for the strategic long term interests of the United States, that even Defense Secretary Ashton Carter himself weighed in arguing the positive aspects of being a member of the TPP.
The TPP was signed by all of its twelve member nations on February 4th this year, and is awaiting ratification. The odd thing is that the TPP was actually promoted by Washington as a way to counteract the growing influence of China in the Pacific generated by its initiative One Belt One Road. No wonder that for the Obama administration, approval of the TPP was for him the equivalent of acquiring an aircraft carrier.
International trade deals such as the TPP are not done overnight, negotiations can take a long time, and the TPP was actually 5 years in the making. A lot of effort, time, and money went into turning the TPP into a reality. The most important thing to learn about international trade deals as complex as the TPP is that those who set the rules that everybody else (i.e. aspiring members) will have to follow and comply with in the future are the first members who formed the club, pretty much like the The Houghton Fishing Club in Great Britain. Once the club has been established, those who want to join later may find it very difficult or even impossible to join, and even if they are accepted by a majority of members they must still abide by the rules laid out by the original founders. There is no negotiating room for any Johnny-come-latelies, they are in no position to bargain anything in their favor, if they want to join they must first be accepted, and even then they must agree to comply with all the rules of the club or else be left completely out. Before deciding to pull the USA out of the TPP, Donald Trump who boasts of being a master negotiator, should have known this better. Even if Trump is kicked out of office four years from now by an irate and frustrated mass of voters, some things such as this one cannot be undone, the pullout from the TPP is irreversible and acceptance into a new TPP will be done not on terms imposed by the US government but by terms imposed by the Chinese government, further relegating the predominance of Uncle Sam in the international scenario.
With the USA out of the way, a new TPP can still be negotiated, no problema, but instead of accommodating the needs and interests of the USA, the new TPP will surely be modified to suit the needs and interests of China using the defunct TPP as framework. By using the existing and already agreed upon TPP as framework, the new TPP sans USA is not expected to take 5 years to turn into a reality, and it may be concluded in two years' time.
Besides pulling the USA out of the TPP, Donald Trump as president threatens to punish Chinese imports with stiff tariffs. Yes, he can do it, but the Chinese government can reply in a manner that will directly hurt and impact the US economy and take hundreds of thousands of American jobs into oblivion. An editorial of China's state-run Global Times stated this regarding the trade barriers Trump wants to impose as president against Chinese manufactured goods:
“A batch of Boeing orders will be replaced by Airbus (Airbus has now made available to the world its A350-1000 model that will compete directly with the top-of-the-line Boeing 777). U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted”.
Just to give an example of what may be coming to North America, in 2012, the U.S. Commerce Department slapped anti-dumping duties of up to 78 percent on Chinese solar panels after German-owned SolarWorld AG complained that below-cost Chinese imports were hurting its U.S. production. China responded with its own 57 percent duties against U.S. producers of polycrystalline silicon, the raw material for photovoltaic cells. This helped put the brakes on an industry that was fast expanding to meet demand from Chinese solar panel makers. Hemlock Semiconductor, controlled by Dow Corning, abandoned construction of a $1.5 billion new polysilicon plant in 2014. Dow Corning spokesman Jarrod Erpelding said Hemlock “serves as a strong example of how trade disputes often have unintended consequences”. Francine Sullivan, chief legal officer of REC Silicon in Moses Lake, Washington, which halted production this year, added “This is really stupid, the necessity and value in putting on tariffs to protect solar panels in the U.S. was just not thought through. We've suffered enormous financial damage as a result of this”.
Yes, the Trump administration can try to make life miserable for the Chinese. But the Chinese, already a world dominant power in economic issues, can make life even more miserable perhaps not for president Trump but most certainly to many of the hundreds of thousands of white middle class voters who voted for Donald Trump. Likewise, thousands of Midwestern hillbilly growers of maize and soybean will very likely end up in bankruptcy and will very likely end up foreclosing farms nobody wants. We are talking about major economic dislocations and perhaps even what might be called The Second Great Depression. And if an enraged president Trump, acting on impulse only (as he usually does) deciding to become a bully, opens up the presidential portfolio containing the nuclear launch codes, someone in his cabinet should remind him that China is also nuclear superpower with the capability to respond to such an attack and turn Washington into wasteland, and Russia's Vladimir Putin is unlikely to come to the rescue, surely taking sides with whomever comes out the winner after the nuclear fireworks.
The demise of the TPP will force countries in the Asian continent, who already conduct most of their trade relations with China, to come closer to China and accept the conditions that Beijing has established in its commercial relationships. The position of China will be even stronger than it was.
Way to go, Mister Trump, way to go!
Another trade deal that was in the making has most likely gone down the drain because of Donald Trump becoming elected president of the USA. No, it is not NAFTA of which Trump has declared himself to be a sworn enemy. The remarkable thing is that Trump has not even taken office and yet because of him this other promising trade deal is now on life support, and may never become a reality. It is not a trade deal between the USA and a third world impoverished nation with very low wages, quite the contrary, it would have been a trade deal between the European Union itself, and acting as a sort of spokeswoman speaking in behalf of one of the most powerful countries in Europe, the German chancellor was the one who gave the bad news to the USA. We're talking about Germany. Yes, Germany, the economic powerhouse of Europe.
On what perhaps may very well be the last public meeting between US president Barack Obama and Chancellor Angela Merkel, she stated with a very diplomatic language:
“The European Union and the US are the two largest trading regions and I have always been very committed to the conclusion of a trade agreement with the USA. We have done well, the negotiations cannot be finished now, but we will stick to what we have achieved. I`m sure we`ll come back to it someday.”The words of Angela Merkel may not mean much to many people, but if we are careful enough to read between the lines, they mean a lot, with profound historical significance.
A very important trade deal was actually in the making, and it was anticipated that with Hillary Clinton as US president the deal would come to a successful conclusion, beneficial to both parties. But then, and quite unexpectedly for the Germans, Donald Trump, with his fierce protectionist rhetoric, won the presidential elections, anticipating a new hostile attitude The most important phrase of Angela Merkel during his meeting with Barack Obama was: “I have always been very committed to the conclusion of a trade agreement with the USA... the negotiations cannot be finished now... I`m sure we`ll come back to it someday”. That someday may not come tomorrow, nor the next year, nor for several years to come.
In subtly saying “the negotiations cannot be finished now... I`m sure we`ll come back to it someday”, the Chancellor of Germany really meant that, with an unpredictable and unreliable person such as Donald Trump in the US presidency, the trade deal negotiations have come to a halt, at least from the European perspective. And in subtly saying, “I`m sure we`ll come back to it someday”, Angela Merkel said that there was still hope, but not for the time being. Perhaps someday, but not now. Not while Donald Trump rules as president. The Germans and for that matter the European Unions are poised to adopt a wait and see attitude, and they are bracing themselves for what could be a very long wait spanning several years.
In essence, the envisioned trade deal between the USA and the European Union is now on its way to the morgue, and the outlook of it coming back to the land of the living is grim. The Europeans, after seeing what Donald Trump has done with the TPP, perhaps will wait for some time to see what he does with NAFTA, and they will not have to wait long for Donald Trump has already a plan whereby if NAFTA is not renegotiated to his liking, after his first 200 days in office he will pull the USA out of NAFTA altogether. This is perhaps the kind of signal the European Union will be waiting to see before they give up on any possibility of retaking again the negotiations of a trade deal between the USA and the European Union. If the USA cannot be trusted in the long run to be a reliable partner, and it can forsake on any deal depending on the very unpredictable nature of the American voter, who wants to sign up a long trade deal with such an unreliable partner?
The most remarkable thing is that the trade deal negotiations between the USA and Europe are now in a state of stasis even before Donald Trump still has about two months to go before taking office. He is not yet the president, Barack Obama still is -although a lame duck president- and yet his shadow is already casting a somber future in the issue of all trade deals. The next photo taken at the Brandenburg Gate in Germany after the Trump victory became known in Europe clearly shows that some Germans are in no mood nor hurry to carry out any free trade deal negotiations with an unreliable USA ruled by an unreliable and quick tempered man who reminds them of another dictator who seized power making many of the same promises Donald Trump has made to the US electorate:
Among the things Germany and the rest of Europe are waiting to see in the next few months is if Trump as president will really make good on his promise of imposing a 35 per cent tariff to all motor vehicles manufactured in Mexico, which would in turn create all sorts of problems for the production of vehicles in North America, and those who stand to gain the most are not American car manufacturers such as Ford and General Motors but the Asian and European manufacturers of motor vehicles. If to counteract this situation Washington also imposes tariffs not only to vehicles manufactured in Mexico but to all vehicles manufactured outside the USA, then other countries (meaning the rest of the world) will most likely take countermeasures by imposing stiff tariffs not only to US vehicles but to many other products made in America, and we could end up seeing trade wars such as the one that took place during the thirties which only deepened the Great Depression and created the proper social conditions to bring to power those who set of World War Two. With a new long lasting global trade war sparked by an angry tycoon turned president who is used to getting his way, at the very least the US would also have to pull out of the World Trade Organization -or be kicked out of the WTO- for failing to abide by international fair trade practises. And almost certainly there would be a global economic recession on an unprecedented scale after the first two years of Donald Trump sitting on the Oval Office. Not precisely the best way to “make America great again”.
For the time being, let`s give a solemn toast in mourning to the now defunct Trans-Pacific Partnership agreement which may soon be reawakened under the leadership of China, with the USA left out for good. And let`s give another toast to the wisdom of Chancellor Angela Merkel. Her message to US president Barack Obama was really not meant for the lame duck president, but rather for the incoming US president, a protectionist president who is already starting to reap for his country some of the consequences of his fierce anti-globalization rhetoric. No, Mister Trump, the negotiations between the USA and the European Union cannot be finished for the time being, as Angela Merkel said, but a new round of free trade negotiations can be carried out... someday... perhaps... in the distant future... with you out of office...
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