Why the U.S. Will Stay on TPP’s Sidelines

On January 23, the remaining members of the Trans Pacific Partnership formally agreed to move forward on the agreement without the United States. On January 24, U.S. and Japanese trade officials held a working-level meeting on market access. On January 25, Donald Trump told the media in Davos that he would reconsider U.S. participation in TPP if it were a “substantially better deal.” On February 13, Trump threatened to push for a “reciprocal tax” against countries that impose tariffs on U.S. products, including, presumably, Japan. On the same day, Treasury Secretary Steven Mnuchin told the House Ways and Means Committee that the administration is actively discussing rejoining TPP. On March 8, TPP-11 will be formally signed in Chile.

Many chuckled when Prime Minister Shinzo Abe said that TPP was meaningless without the United States not long after Trump won the presidential election with TPP withdrawal as one of his favorite talking points. Trump indeed pulled the United States out of TPP, but just over a year later it is the Trump administration making noises about rejoining TPP while the other members move forward confidently without the United States.

Obviously both sides see a role for one another – the economies are too large and the potential benefits too promising to let U.S. withdrawal be the final word. The problem is that divining the difference between what Trump says, what he means, and what he’s capable of achieving are all very different things. Just because Trump says he’d reconsider U.S. participation in TPP doesn’t mean he’s serious; he could just be playing to the crowd. Just because Secretary Mnuchin says that the United States is exploring its options in relation to TPP doesn’t mean any of those options are actionable. For Abe, better to grab the initiative, build leverage, and wait for Trump to catch up than to count on a simple change of heart.

Just because Trump says he’d reconsider U.S. participation in TPP doesn’t mean he’s serious; he could just be playing to the crowd

What would U.S. reentry look like under the current scenario? First, the agreement needs to be formally signed, ratified, and brought into force before the thought of new members can be entertained. Only two countries, Japan and New Zealand, ratified the original 12-member agreement which leaves the remaining nine members with their myriad ratification procedures to approve the agreement while managing the domestic politics in their respective countries.

In the meantime, the United States could lay the groundwork to return to TPP during the ratification process to ease U.S. reentry following TPP-11’s entry into force. The provisions that were included at the request of the United States are no longer binding but contained in a list of twenty “suspended provisions” that could presumably return into force when the United States returns to the agreement. Procedurally, the United States could either work with the members of TPP-11 or address the issues in the context of a bilateral free trade agreement with Japan that harmonizes well with the requirements of TPP-11. Though Japan isn’t keen on a bilateral FTA, it may be more palatable if it comes with the knowledge that it would be a stepping stone for bringing the United States back into TPP. Substantively, with the TPP-11 agreement being essentially the same as the original TPP and given the suspended provisions list, U.S. reentry shouldn’t be complicated provided the United States more or less agrees to the terms of the original agreement.

The rub is that Trump doesn’t want the original agreement, he wants a “better deal.” While there’s some history about what Trump might expect from TPP–presumably market access for U.S. autos and provisions on currency along with ensuring fairness for U.S. producers–the best indicator will be the outcome of the NAFTA and KORUS renegotiations, both of which are a long way from being settled. The problem is that autos and currency are a nonstarter for Japan, who has skillfully punted such requests into the joint economic dialogue led by Vice President Mike Pence and Deputy Prime Minister Taro Aso, and a bilateral FTA is almost certainly off the table unless Japan feels confident that it can negotiate from a position of strength on those issues. There’s also the question of what U.S. firms and trade associations will ask for if they get a second bite of the apple – do they aim to get better outcomes on things they might have settled for in the original TPP? Do intellectual property rights for pharmaceuticals – a contentious issue in the original negotiations – get the same attention once Senate Finance Committee Chairman Orrin Hatch retires?

But while TPP-11 isn’t nearly as impactful an agreement without U.S. participation, the 11 economies may yet decide to accept U.S. reentry on their terms, not Trump’s. Do other countries push back on the United States, either out of resentment or to settle scores or simply to see what concessions they can extract? It’s also worth remembering that many of the governments that negotiated with the Obama administration have new administrations of their own or soon will. And given that the suspended provisions can only be returned to the agreement if all eleven governments acquiesce – it’s easy to imagine the pitfall this may offer. They may not respond enthusiastically to the prospect of U.S. reentry, especially if they think they have a chance to extract concessions from a U.S. administration that is deeply, historically unpopular overseas. When Shinzo Abe said that the current agreement is “as delicate as glass” he was on the mark.

When Shinzo Abe said that the current agreement is “as delicate as glass” he was on the mark

If the waters are choppy internationally, getting past the water’s edge doesn’t make the passage much calmer. The good news is that Trade Promotion Authority (TPA), the mechanism that allows for expedited consideration of trade agreements (up-or-down votes without amendment), is still in force. TPA will expire on July 1, but there are procedures to extend TPA until 2021 – the White House must submit a report to Congress on the current status of any trade negotiations by April 1, the Advisory Committee on Trade Policy and Negotiations makes its report before June 1 while the International Trade Commission must make its report on the economic impact of all trade agreements on the same date, and Congress would have to block the adoption of an Extension Disapproval Resolution (which effectively means that Congress doesn’t vote to grant an extension but votes to block an extension). All pro forma stuff and not likely to be the source of any real roadblock, but still a procedural hurdle to be cleared by a White House that is still behind the curve on procedure.

Assuming TPA is extended until 2021, that leaves Trump with the current congress and the next one to ratify any agreement. Regarding the current Congress, there’s very little space on the ledger to take up any ratification procedures. Between a deal on immigration, a possible infrastructure bill, appropriations bills and/or continuing resolutions, the calendar is already packed notwithstanding the fact that most members will return to their states and districts in August to campaign for the hotly-contested midterm elections.

If the waters are choppy internationally, getting past the water’s edge doesn’t make the passage much calmer

Whether the next Congress will be any easier depends on the outcome of the midterms. Six months is effectively years in political time (and maybe decades in the current administration), so predicting the outcome isn’t much better than a crapshoot. Any result – Democratic wave, Republican hold, or a slight Democratic pickup – are all within the realm of possibility. Regardless of the outcome of the midterms, picking up Republican support for an Asian trade deal will be easy – Trump’s party and its voters are  easily led. Republican support for free trade plummeted with Trump’s condemnations of “bad deals” and if he tells Republicans that he renegotiated and got a better deal they’ll almost certainly accept his assurance regardless of the actual content.

As for Democratic support, historically Politico’s Morning Trade newsletter wrote that 20-25 Democratic votes are usually available to support an FTA (KORUS picked up 37 Senate Democrats, Colombia got 27, and agreements with Panama and Peru each picked up 29 Democratic votes). Whether that would hold for a TPP do-over is an open question – many Democrats believe their success depends on absolute opposition to Trump, the party is swinging left, and many of its likely presidential candidates are steadfast trade skeptics and anti-TPP, even when President Obama was pushing the agreement forward. At the same time, many Democratic members are still free traders and blocking an agreement that liberalizes trade with Asia will be difficult for members from west coast states or trade-dependent states to oppose. In the final calculus, each trend will likely temper the other, raising the prospect of some Democratic support but probably less than in the past.

Many Democrats believe their success depends on absolute opposition to Trump, the party is swinging left, and many of its likely presidential candidates are steadfast trade skeptics and anti-TPP

Since the following Congress concludes with the 2020 presidential election, all bets are off for what comes next. If TPP reentry becomes an issue that Trump tries to champion and if he loses the election, then whoever follows him in the White House will probably want a do-over of their own to distance themselves from Trump. If U.S. participation continues to languish, TPP will only be taken up if the following president is a liberal internationalist, but given that candidates of either party will have to reflect the economic populism of their voters to some degree, they won’t have the political capital to take up U.S. reentry for at least a year.

This assumes that were will even be an agreement at hand to present to Congress, which itself is a massive assumption. Suffice to say, many pieces will have to come together in the next 3-4 years even to make a ratification vote possible, requiring more negotiating skill and bureaucratic mastery than the Trump administration has shown itself capable of achieving. That said, the NAFTA renegotiation will give it an opportunity to display its mettle, making those negotiations a worthwhile indicator for how the United States could get back into TPP.

But even the NAFTA comparison isn’t perfect – the reason Trump has stepped back from his threats to withdraw is because senators from trade-dependent states and business groups talked him down from the ledge. For them, NAFTA withdrawal would be disastrous because it would overturn roughly two decades of commerce and business plans. In other words, NAFTA is tangible – TPP is abstract. It’s much easier and much more immediate to mobilize forces to prevent backsliding than it is to mobilize forces for an agreement whose benefits are not yet known and certainly not yet accounted for in business plans. If the NAFTA renegotiations are successful and everyone walks away equally unhappy (what trade wonks call “a successful outcome” ), the reason will be because stakeholders mobilized to prevent the table-thumping from going too far. TPP probably won’t draw the same mobilization – business groups were lethargic in helping push the deal through Congress and in the current climate they seem to be more willing take what they can get rather than push for bold new high-level agreements like TPP.

NAFTA is tangible – TPP is abstract. It’s much easier and much more immediate to mobilize forces to prevent backsliding than it is to mobilize forces for an agreement whose benefits are yet unknown

The trick will be to keep the United States engaged while also recognizing that the political window for domestic ratification is extremely narrow. To that end, the best option will be to build a constituency that’s analogous to that which has helped Trump back off of his threats to pull out of NAFTA. The Japanese government has already done this to an extent: by putting floodlights on its firms’ investment plans in the United States and by focusing its economic diplomacy efforts on Vice President Mike Pence, whose home state of Indiana benefits significantly from Toyota’s investments, Japan has helped tamp Trump’s anger towards the bilateral economic relationship (though his fundamental complaint about trade deficits persists). While bilateral investment can’t duplicate the impact of a free trade agreement like NAFTA, Japan could recalibrate its strategy towards the United States from simply staunching possible damage to a proactive approach that can increase the political space for making something like TPP reentry possible.

It’s a long shot. Fortunately for Japan, they have successfully and cannily built enough capital with Trump to make such a strategy possible, though still unlikely. Even with such a push, the procedural hurdles to getting the United States back in the club are not necessarily prohibitive, but significantly daunting. The odds are greater that the United States is on the sidelines for a very long time.

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Paul Nadeau is an adjunct assistant professor at Temple University's Japan campus, a visiting research fellow at the Institute of Geoeconomics, and an adjunct fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS). He was previously a private secretary with the Japanese Diet and as a member of the foreign affairs and trade staff of Senator Olympia Snowe. He holds a B.A. from the George Washington University, an M.A. in law and diplomacy from the Fletcher School at Tufts University, and a PhD from the University of Tokyo's Graduate School of Public Policy. He should be general manager of the Montreal Canadiens.

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