Perhaps there is, as Ross Garnaut has argued, no silver lining to Donald Trump’s economics. But there may be a small silver lining to Trump’s rejection of the Trans Pacific Partnership (TPP) and his embrace of protectionist policies during the campaign. It depends if the response to these helps Australia snap out of any complacency regarding the merits of globalisation and to be an active champion of greater liberalisation and openness.
Protectionism has been growing since the global financial crisis, as reported by the World Trade Organisation, particularly 'murky' protectionism, as highlighted by The Global Trade Alert. Brexit and the election of Trump have been portrayed as protests by those who have not benefited from greater integration between economies. John Denton observed that the rising protectionist sentiment is based on the simple narrative that free trade offered false promises and this has resulted in widespread disillusionment with political leaders.
One of the greatest dangers facing the global economy is the prospect of politicians jumping on the alluring anti-free trade sentiment and imposing greater barriers to the movement of goods, services and capital in order to 'protect jobs'. But one positive since Trump’s election win has been the number of people advocating the folly of such a response, and pointing out that countries that have liberalised and integrated with others have achieved higher welfare gains than those who have not. Two examples are John Denton’s ‘Globalisation – where to now?’ and Andrew Leigh’s ‘What would modern Australia look like without China’. Prime Minister Malcolm Turnbull summed it up well when, on the eve of the recent APEC leaders’ meeting he said: 'Instead of looking backwards, we must make the case to increase global economic integration'. He also emphasised that we must ensure the benefits of open markets are delivered for the many and not just the few.
The supporters of globalisation – in government, business and academia – have hopefully recognised both the magnitude of the threat that would come from turning our backs on open markets, and the need to be more vocal and persuasive in explaining the benefits from greater global integration (while being more active in ensuring that these benefits are shared more equally).
So what can Australia do in order to follow the Prime Minister's exhortation to 'embrace free trade, not retreat from it'?
There is considerable talk that in response to Trump rejecting the TPP, there will be an added emphasis on advancing the 'other' Asia Pacific trade agreement under consideration, the Regional Comprehensive Economic Partnership (RCEP). Australia is a member of the RCEP negotiations and should actively work to conclude the agreement. But RCEP should not be seen as a rival to the TPP, in particular it should not be seen as a Chinese attempt to counter the (previously) US-led TPP. The TPP and RCEP should be seen as complementary agreements and Australia - along with Brunei, Malaysia, Singapore, Vietnam and Japan - are appropriately parties to the negotiation of both proposed agreements.
It is also wrong to view RCEP as a 'China led' trade agreement, although, unlike the TPP, the RCEP does include China and India, but not the US. RECP is essentially an ASEAN inspired agreement. It is not as ambitious as the TPP, which sets high standards in many areas such as labour, the environment, state owned enterprises, intellectual property and the digital economy. The core of RCEP is getting consistency in the rules for ASEAN free trade agreements. It seeks to harmonise tariff schedules and rules of origin along with some improvement in access to services and investment. The RCEP negotiations have been making considerable progress and the early completion of the agreement would maintain momentum for closer integration in Asia and be a welcome rejoinder to anti-trade sentiments.
Australia should also seek to go ahead with the TPP notwithstanding Trump’s rejection of the agreement. The other 11 members of the TPP should do everything possible to ratify and implement the TPP for it is a very significant achievement that could serve as the model for trade agreements in the 21st century. It is also an important catalyst in driving domestic reforms in a number of countries, particularly Japan and Vietnam. It would be a great pity if all the work that went into concluding the TPP was lost. It may prove difficult for some members to push ahead, given many of concessions given to conclude the agreement were dependent on gaining access to the US market. Going ahead without the US would also require some re-jigging of the agreement. As it is, implementation requires ratification from members with 85% of combined GDP, a level that would require the US. However, difficult as the task would be, TPP members should try to preserve it.
Australia should pursue the completion of RCEP and implementation of the TPP as steps towards achieving a Free Trade Area of the Pacific that includes all Asia Pacific economies, an idea that has been around for some time but was embraced by China when it chaired APEC in 2014. The more parties there are to a preferential trade agreement, the more beneficial it is likely to be.
Another reason to go ahead with the TPP is that it will provide a path way for the US to 're-join' an Asia Pacific trade agreement, when it comes to its senses. As Matthew Goodman correctly identified, while US policy may change with a new administration, US interests do not. Notwithstanding Trump’s views, the US has a clear and compelling interest in actively participating in, and indeed leading, economic integration efforts in Asia pacific. Australia should encourage the new US administration to recognise where its interests lie and in doing so, offer a path way for it to ‘re-join’ Asia Pacific trade liberalisation.
Photo courtesy of Flickr user 31dec