And so it begins, President Trump yesterday withdrew the US from the Trans-Pacific Partnership (TPP) which had taken the Obama government two years to negotiate. The TPP included 11 other nations in a free trade agreement linking countries that account for approximately 40% of global GDP. Trump, during his campaign claimed the current TPP and NAFTA agreements were unfair to American industry, adding that workers appear to have opened the door for China to take a major role in trade within the region.
Senator John McCain of Arizona said the US withdrawal ‘will create an opening for China to rewrite the economic rules of the road at the expense of American workers’. Next month in Japan the trade deal being promoted by China, The Regional Comprehensive Economic Partnership (RCEP) which includes 16 nations has its next round of talks and includes Japan, South Korea, Australia, New Zealand and India.
Former US trade representative for China affairs said ‘It’s a giant gift to the Chinese because they can now pitch themselves as the driver of trade liberalization.’ Chinese President Xi Jinping has already started to position China to take advantage and had anticipated Trump’s move on trade. Just last week in Davos at the World Economic Forum he described trade protectionism as ‘locking oneself in a dark room’. Xi has made trade a cornerstone of his presidency endeavouring to expand trade ties with neighbours and has put in place a massive infrastructure project opening up old trading routes to the Middle East and Europe. In fact the first direct train from China to the UK arrived in London last week, re-opening the old (2,000 year old) Silk Road route; which was previously used to carry goods between Asia and Europe. After a 7,500 mile, 18-day journey the Chinese freight train delivered ~GBP 4m worth of clothing and other goods to Barking, East London.
Trump, after withdrawing from the trade agreement said it’s a ‘great thing for the American worker, what we just did’ time will tell but trade disruptions are seldom good for anyone.