The future of free trade

For all that Donald Trump is a buffoon, he had some big successes (from a U.S. point of view), particularly with regard to international trade. His renegotiation of NAFTA is almost certainly an improvement, and his hard stance on trade with China was a long time coming. That said, he made a number of strategic errors as well. Pulling out of the Trans-Pacific Partnership was one of them. First, there was the nearly-immediate reduction in U.S. influence. After pulling from the partnership, the other 11 parties (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) went forward and revived the free-trade agreement under the slightly modified name of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It went into effect on December 30th, 2018 — without 22 provisions from the original TPP that the U.S. favored but other parties opposed. Ouch. But worse, it opened the door for broader free-trade agreements without the U.S. Last week, the ASEAN nations plus Australia, China, Japan, New Zealand, and South Korea signed the Regional Comprehensive Economic Partnership (RCEP). The inclusion of China in this is huge. First, it makes it now the world’s largest free-trade agreement (bigger than either the EU or NAFTA). Second, it’s a giant blow for the U.S. There’s the direct effect that quality of life will improve dramatically for these countries in a way that it now can’t for Americans (this is what free-trade does: it makes better goods available for cheaper to those who are trading without tariffs), but there’s the knock-on effect both that U.S. allies are emboldened to do deals with China that they probably wouldn’t have previously; and that China indirectly gains influence and prestige in the region. None of these effects will be immediate (it may take up to two years for the member countries to individually ratify RCEP), but from a strategic perspective, this is a giant blow to the U.S., and a clear indicator that the world is going to continue to move towards freer trade, with or without them.

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Chris Richardson has strong opinions on just about everything. Just ask.