US inward turn can galvanise defenders of liberal order

By Martin Sandbu November 21, 2016 FT

Donald Trump was elected US president on a platform of anti-globalism and, in particular, on a promise to change or withdraw from America’s existing trade agreements and kill the ones in the pipeline.

The Trans-Pacific Partnership was already in trouble before the election; Trump’s victory seems to have given it the coup de grâce. The Transatlantic Trade and Investment Partnership, meanwhile, now looks set to be stillborn.

That is, as far as US participation goes. What the American turn inwards means for the rest of the world is an open question. There are those who think the loss of US leadership on international economic integration will embolden protectionism elsewhere — especially as it comes on the heels of the protectionist vandalism that is Brexit — and sap the will of those who want to keep their economies open or even open them further. They will point to Europe, whose free-trade deal with Canada was passed by a whisker last month, and that only conditionally.

But there is another possibility, which is that victory of anti-globalism in the US and the UK galvanises others to fight harder for the continued lowering of national barriers.

Cue John Key, the prime minister of New Zealand. At the Apec (Asia-Pacific Economic Cooperation) summit in Lima last week, he defiantly vowed to push ahead with trade integration in the Pacific. He suggested tweaking the deal to make it more attractive to the Trump administration — including, jokingly, by naming it the Trump-Pacific Partnership — but, more importantly, made clear that the other TPP partners should seriously consider going ahead with the deal even without US participation. Peru’s president, too, warned against protectionism and against giving up on the TPP.

Meanwhile, Beijing has responded nimbly to Trump’s election by encouraging America’s likely-to-be-spurned TPP partners to join it in building a free-trade area including China instead. The world’s second-largest economy is already involved in several regional trade initiatives that are beginning to be touted as alternatives to TPP. Australia is showing interest in the move, which would sideline the US.

It is a strange world when China becomes the champion of global economic openness. But it is an entirely logical one, if the US does indeed decide to abdicate leadership. As the FT’s Shawn Donnan puts it, when outgoing President Barack Obama met his counterparts at the Apec summit, he may have felt “he is handing the Chinese leader the keys to the global economy”. He quotes the Peterson Institute’s Adam Posen as pointing out that: “You can’t beat something with nothing, and the Chinese are offering something.”

To anyone who cares to notice, this brings home the continued importance of global integration but also who, in particular, leads the integration effort. The “something” that China offers is much less ambitious than the TPP — in particular, it will not include that deal’s seminal provisions on labour and environmental standards. Moreover, trade integration led by Beijing instead of the US will mean trade integration on terms more suitable to China. That must surely be inferior — for the US and its allies — to the US-led terms and standards for Asia-Pacific economic integration to which China would eventually have to adapt, which was the big strategic prize of the TPP.

That makes Pacific trade one aspect of the bigger picture of America’s interest in the rules-based global order that it has built and maintained since the second world war — which has served it and its allies better than the alternatives of international anarchy or an order designed by its big power rivals. “America first”, in global politics, could quickly reveal itself as “America last”. And, as Leonard Cohen, the late poet of an imperfect world, said in an interview a few years ago: you will not like what comes after America.

America’s choice is ultimately the most consequential. But the more immediate battles between openness and withdrawal from the global economy are taking place in Europe. Partly, of course, in the process of Brexit, where the fight is on over how much to raise trade barriers between the UK and its biggest trading partner. But also because the EU itself is actually contributing to the cause of trade openness through two substantial deals.

One is Ceta, the fraught EU-Canada trade and investment agreement that is finally passed, at least conditionally, after a Walloon hold-up. That was widely seen as an embarrassment for Europe. But we should be clear about what the final result involved: that a big trade liberalisation package was exposed to real and messy democratic scrutiny — and that it survived the exposure. In these times, where democracy is seen as antagonistic to economic openness, that is something to celebrate.

The other, much less talked about, effort is the EU-Japan free-trade deal. Mysteriously absent from the headlines, negotiations have been taking place for three and a half years and are nearing completion. Some think that, in pure economic terms, the prospective gains are bigger than could be had from TTIP. The two sides have still to agree on phasing out protection of Europe’s car market against lower barriers in food and agriculture in Japan.

Brexit focused minds; Trump’s victory must have focused them further. It is in Japan’s and the EU’s narrow self-interest to conclude the deal. But it is also in the broader defence of their values, and the liberal global order, that they do so with confidence and without further delay.