Trump, Trade, and the Future of the Trans Pacific Partnership
Following weeks of campaigning, culminating in a formal concession from Hillary Clinton, Donald Trump is set to become the 45th president of the United States of America. Given the US’ formative roll in TPP negotiations, and legislative deadlock on the issue at the ratification level, Trump’s victory is likely to have a significant impact on the agreement’s ultimate outcome. In this regard, it is worth considering the specifics of Trump’s position on TPP, his view of Vietnam in particular, as well as the impact that these positions are likely to have on the status of the agreement and any future negotiations with Vietnam.
Deriving his support from a reactionary base, eager to buy into populist simplifications of trade, there is naturally an abundance of isolationist soundbites and news clips that can be attributed to Trump and his campaign. While positions of this nature must be taken into account, as Trump will likely fall back on them during a future reelection campaign, the instances where Trump, his running mate – Mike Pence, and members of the Trump team offer details on particular policy positions provide, without a doubt, the most accurate representation of how his administration would handle issues in the months to come.
On the issue of Trade – the topic of greatest importance for TPP – Trump has surprisingly been supportive. Although criticizing deals such as NAFTA, and even TPP at times, the major complaints of the Trump team revolve around the manner in which trade deals have been negotiated, the countries with which they have been concluded, and the structure of agreements that have been struck, rather than the concept of free trade itself.
Although criticisms of key issues such as tariff reductions and enforcement mechanisms within trade agreements are fairly commonplace, and have certainly been a staple of both Trump’s rhetoric and more detailed statement’s, Trump’s proposal to remedy these obstacles is nonetheless illuminating. When asked about his position on the TPP during an early primary debate, jointly held by Fox Business and the Wall Street Journal, Trump advocated for bilateral negotiations rather than multilateral agreements, and emphasized even pairing between trade agreement participants as critical to the success of agreements. More so than anything however, Trump has touted his ability as a negotiator and voiced a desire to involve himself in the negotiation process.
In the context of TPP, a preference for bilateral negotiations is, without a doubt, a negative sign. Furthermore, given significant economic disparity between Vietnam and the United States, there is little reason to believe that Trump would consider Vietnam as a prime candidate for future bilateral negotiations solely based on the benefits of trade. This all being said, it is worth keeping in mind that, unlike countries such as China or Mexico, Vietnam has not been the target of substantial criticism from the Trump camp. Furthermore, given the right conditions, and Trump’s involvement in the negotiation process, it is possible that mutual areas of interest could be found and that TPP could even see passage in the months to come.
The future of TPP
Following Trump’s election, senate Republican leader Mitch McConnell has indicated that TPP will be tabled until Trump takes office, and Democratic leaders have all but conceded that TPP is dead in the water until this time. While this does mean that TPP is almost certain to be delayed, there are several reasons to adopt a wait and see approach, rather than buying into the full blown panic that has gripped international media outlets and equity markets.
Throughout the Trump campaign, China has been at the forefront of criticism targeting globalism and at the core of Trump’s solution for solving many issues facing the American working class. While trade and China bashing are often conflated, selection of parties for the TPP have been made largely as an attempt to use trade to minimize Chinese influence throughout the APAC region. Although deviating significantly from the simplistic understanding of commerce that dominated the Trump campaign’s rhetoric, TPP nonetheless presents a salient option for the United States to reduce its reliance on Chinese goods and to promote a rule of law that is in line with its norms.
Considering Trump’s position regarding trade, as well as his propensity to change stances on issues quickly, is it well within reason to be cautiously optimistic that TPP could be rebranded and supported under a Trump administration. If nothing else, Trump has shown his lack of fear when it comes to speaking his mind and is well known for showing little regard to the shock and anger that can come in the wake of his sudden changes in public position.
While TPP may be rebranded and supported under a Trump administration, it is likely that this would require some degree of adjustment in order to rationalize the shift in position. Once criticism of the TPP that could meet this requirement and should thus be watched closely are the agreement’s rules of origin regulations. During his campaign, Trump indicated that China would be able to gain access to the TPP, thus nullifying its effects. While the legitimacy of this claim is up for debate, introduction of more stringent rules regarding the origin of products should be seen as a possibility and therefore monitored closely.
Continuity of the Republican base
More important than following through with constraint of China is the political reality that Trump is likely to face as he takes office. In stark contrast to his ability to tap into personality and charisma during elections, garnering legislative momentum for policy positions will prove difficult without the support of Republican allies – a reality that has become all too apparent during Obama’s tenure.
For Republicans in the United States and Trump alike, postponing TPP will allow for the credit of the agreement to be given, at least in part, to the new Trump administration, and thus taken away from the Obama. Even with subtle changes, allowing TPP to pass will go a long way towards bringing the Republican party together, and is also likely to win Trump favor among the business community and international leaders alike.
FTAAP and the prospects for a unified Pacific
Looking further afield, the failure of TPP may not necessarily mean the end of free trade within APEC, nor a loss of interest in Vietnam. Dezan Shira & Associates, along with its Chairman, Chris Devonshire Ellis, have long held that agreements such as TPP or RCEP, while beneficial in their scope, are simultaneously destined for replacement, as each exclude China or the United States. A more plausible scenario, and one that has become increasingly likely in the face of TPP’s weakening state, is that of a trade agreement truly inclusive in its scope.
Encompassing the United States, China, Vietnam, as well as 18 other Pacific nations, the Free Trade Area of the Asia-Pacific (FTAAP) certainly checks all the boxes needed for a truly Pacific agreement. In a recent APEC summit in Peru, Xi Jinping promoted the agreement as the end goal of China’s current push for a slightly smaller regional comprehensive economic partnership (RCEP) in a speech that was largely viewed as the Chinese response to a faltering Trans Pacific Partnership. Should FTAAP come to pass, it is likely that Vietnam’s exports would stand to benefit even more than under the current TPP agreement. Furthermore, with attention unified around a centralized objective, it is likely that a refocus on FTAAP will save many countries the struggle of choosing between a US or Chinese dominated Pacific.
For a country like Vietnam, however, participation of the United States – its largest trading partner – will be of utmost importance. On face value, the multilateral nature of the FTAAP risks flying in the face of Trump’s support for bilateral negotiation. However, given the lion’s share of trade within FTAAP would involve the US and China, terms and negotiation of the agreement itself is likely to take on more bilateral characteristics and may curb opposition.
For a more extensive analysis of TPP and its relationship with FTAAP please click here.
Implications for investment in Vietnam
Given the inability of analysts to predict Trump’s victory, markets across the world have been in a state of turbulence following the concession of Hillary Clinton. Out of ASEAN member-states, Vietnam has and will continue to bear the brunt of any future shocks, as the United States is its largest source of demand. While equity markets within the country have taken a hit since the election, and pressure on the VND trading band is likely to have followed, the real impact of Trump’s victory will likely play out as his emerging policy positions are priced into sentiment for FDI.
Even if the US falls through on its support and passage of TPP however, there are many business lines within Vietnam that will remain competitive for US investors – a fact evidenced by rising levels of bilateral trade in the absence of TPP. For companies considering investment within Vietnam, be important to conduct premarket analysis of Vietnam’s costs – both with and without TPP – in order to ascertain the variability of establishing operations within the country. In conjunction with premarket analysis of Vietnam, it will also be important to maintain robust monitoring of Trump’s policies regarding trade as well as his position towards Vietnam.
For more information on the state of US support for TPP, competitiveness of Vietnamese industries, or other aspects related to pre market analysis of Vietnam, please contact Vietnam@dezshira.com or visit us online at www.dezshira.com
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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