By Hussain H Zaidi<\/p>\n
President Donald Trump has pulled the US out of the Trans-Pacific Partnership (TPP) on his first day in the White House. If for nothing else, Trump deserves a round of applause for being as good as his word.<\/p>\n
Compliments aside, the decision taken by the man who presides over the globe\u2019s largest economy and trading nation is likely to set the pace and direction for international economic developments.<\/p>\n
Free trade agreements (FTAs), which seek to eliminate or slash import tariffs, have been seen as the capital instrument of driving up trade and economic growth. Buying into this conventional logic \u2013 neoliberalism, as it is commonly called \u2013 countries all over the world have gone on a spree to conclude FTAs both bilaterally and regionally. Since 1995, more than 400 such agreements have been notified to the World Trade Organization (WTO) Secretariat, while the number of FTAs notified between 1948 and 1994 was merely 124. So pervasive has been the influence of neoliberalism among both academics and policymakers that one could question it only at the peril of being rounded on.<\/p>\n
The recent trade data flies in the face of the FTA-centric approach. The explosion of such agreements notwithstanding, for several years, world trade has been hit by stagnation and, at times, recession. From $15.9 trillion in 2008, the year when the global financial crisis erupted, the world trade fell to $12.3 trillion in 2009. The next two years saw some recovery as the trade volumes surpassed $18 trillion. But then stagnation set in, leading to a fall in trade volumes to $16.2 trillion in 2015.<\/p>\n
The neoliberal approach to international trade has been beset with two perennial problems, which partly explains why tariff elimination agreements are not the recipe even for trade enhancement, much less for increased prosperity.<\/p>\n
One, as a rule, the FTAs have fallen short of full-scale liberalisation by excluding \u2018sensitive\u2019 sectors from tariff elimination. These are highly protected, inefficient sectors, and \u2013 going by the neoliberal theory \u2013 they are most in need of liberalisation. In Pakistan, for instance, the auto sector has, by and large, been excluded from the FTAs\u2019 coverage. European countries, by the same token, make it a point to put their agricultural products on the sensitive or negative lists of their FTAs.<\/p>\n
Two, free trade has strong distributional effects within the economy, as it tends to reward relatively abundant factors of production at the expense of scarce ones. In developed countries, such as the US, one of the outcomes of the FTAs is that labour-intensive sectors are the losers, while capital-intensive sectors are the winners. In the wake of the North Atlantic Free Trade Agreement (Nafta), thousands of American workers employed in the apparel and other labour-intensive sectors lost their jobs owing to cheaper imports coming from Mexico.<\/p>\n
The US Bureau of Labor Statistics puts the number of jobs lost in the country\u2019s manufacturing sector at six million between 1999 and 2011. It was the cause of such displaced workers that Trump took up during his election campaign. Obviously, trade is one of the several factors responsible for unemployment. But it\u2019s easier to point a finger at trade.<\/p>\n
The US walking out of a tariff elimination treaty is significant not merely for the TPP \u2013 the agreement was only signed and never ratified by Washington \u2013 but for trade, economic policies and narratives in a larger context as well. The decision, to start with, has put the future of the TPP trade deal under question. Australia and New Zealand, who are among the signatories to the treaty, have announced their decision to invite some Asian countries \u2013 notably China \u2013 to join them to fill the vacuum left by the withdrawal of the US. In the words of Australian Prime Minister Malcolm Turnbull, \u201closing the US from the TPP is a big loss, there is no question about that. But we are not about to walk away\u2026certainly there is potential for China to join the TPP\u201d.<\/p>\n
However for Japan \u2013 which is now, arguably, the most influential member of the TPP because of the size of its economy \u2013 the trade pact \u201cwithout the US is meaningless and the balance of interests would crumble\u201d. The Japanese view reflects the country\u2019s disapproval of a stronger Chinese role in the Pacific. It will be difficult for China to join the TPP, in case it chooses to do so, in the face of a likely Japanese opposition.<\/p>\n
Ironically, Beijing, until recently, was not invited to join the TPP, because Washington, with Obama at the helm, viewed the arrangement as a counterweight to the Asian giant\u2019s influence in the region. But now Washington has walked away from the arrangement. National priorities keep on changing.<\/p>\n
Another Asian economic powerhouse who may be roped in to join the treaty is South Korea \u2013 which, like Japan, is a staunch American ally. However, it\u2019s hard not to agree with the Japanese view that without the US, the TPP will lose its vigour.<\/p>\n
Trump\u2019s views about the TPP and other such treaties signal a strategic shift on the part of the US from its erstwhile strategy of using trade as an instrument to advance0 its political interests and impose its cultural values \u2013 such as respect for human rights \u2013 on other nations. The new administration\u2019s preference seems to be on saving jobs by reviewing and possibly quitting trade deals and going tough on immigration and cross-border movement.<\/p>\n
Beijing is being tipped to step in to fill the vacuum created by Washington\u2019s strategic shift. China\u2019s remarkable economic growth owes much to the star performance of its exporting sector. Over the past three decades, the country has used its successes in the economic sphere to shore up its political clout. With the US on the retreat in economic diplomacy, China is likely to grow more aggressive. Beijing is already on its way to shore up its global influence through the One Belt, One Road strategy \u2013 of which the China-Pakistan Economic Corridor is a part. Concluding FTAs with en route countries is an important component of the strategy.<\/p>\n
A China-centric international economic order \u2013 in the event that it comes about \u2013 will be based on new rules of the game. Unlike the US, the Asian giant has never been ideologically committed to trade and political liberalisation. It remains a one-party state and largely a government-controlled economy.<\/p>\n
Herein lies the capital significance of Trump\u2019s ascendency. Neo-liberalism, which remained the supreme economic doctrine of the world for nearly three decades, has finally come under challenge \u2013 and that too on its home ground. The absolute faith in the virtues of the market economy, coupled with a hands-off approach on the part of the government and the uncountable benefits of economic integration \u2013 which are the cornerstones of neoliberalism \u2013 have come under question. It remains to be seen how potent this challenge turns out to be.<\/p>\n
\n
The writer is a freelance countributor.<\/p>\n
Email: hussainhzaidi@gmail.com<\/p>\n","protected":false},"excerpt":{"rendered":"
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