President-elect Donald Trump’s pledge to upend U.S. trade policy is claiming its first casualty, as Republican leaders in Congress have closed the door on the Obama administration’s hopes for last-minute ratification of an expansive Pacific Rim trade accord before the president leaves office.
The TPP’s collapse denies Obama the economic cornerstone of his administration’s attempt to rebalance the nation’s foreign policy attention toward Asia as a hedge to China’s growing economic and military clout. The accord was viewed as a test of U.S. leadership in the region, and Obama will face disappointed leaders of other TPP countries next week at the Asia-Pacific Economic Cooperation summit in Peru.
Administration officials said they are not abandoning the deal and emphasized that Obama will continue to talk about the economic and strategic benefit. But Chinese officials are expected to use the Peru forum to tout their own Asian trade deal that does not include the United States.
"We have worked closely with Congress to resolve outstanding issues and are ready to move forward, but this is a legislative process and it's up to Congressional leaders as to whether and when this moves forward," said Matthew McAlvanah, spokesman for U.S. Trade Representative Michael Froman.
White House press secretary Josh Earnest said Obama and McConnell spoke after the election about the priorities for the lame duck session. He did not say whether TPP remained on the table, adding only that Obama “does continue to believe that this is the best opportunity that the Congress has to take advantage of the benefits of a Trans-Pacific Partnership.”
The bigger question is whether the demise of TPP marks the beginning of a radical reinvention of the United States’ positioning in the global economy under Trump. During his campaign, Trump tapped into voters’ economic anxiety and blamed free-trade deals for harming American manufacturing workers. He vowed to rip up long-standing accords, including the North American Free Trade Agreement signed in 1994, and impose double-digits tariffs on major U.S. trading partners China and Mexico.
“The electorate that President-elect Trump was able to successfully tap into is one that feels a tremendous amount of economic uncertainty. And much of that they’re blaming on the forces of globalization, fairly or not,” said Chad Bown, senior fellow at the Peterson Institute for International Economics. “TPP got caught up in that.”
In addition, Trump has said he would label China a currency manipulator on his first day in office — a move that some experts have cautioned could be the first step in igniting a trade war with damaging ramifications for the U.S. economy.
Even a modest increase in duties on Chinese and Mexican imports could have significant consequences. A report issued by Barclays this week estimated that instituting 15 and 7 percent tariffs on China and Mexico, respectively, would shave about half a percentage point from growth next year.
In an interview, Trump economic adviser Judy Shelton, co-director of the Sound Money Project, argued that addressing currency manipulation could actually help facilitate international trade by forcing countries to adhere to the same standards.
“It doesn’t mean you’re a protectionist," she said. “Currency depreciation is not competing. It’s cheating.”
In the weeks leading up to the election, senior Obama administration officials had fanned across the country to tout the benefits of the TPP deal — and to warn of consequences if it failed to pass. A White House analysis found that if Japan were to enter into a free-trade agreement with China instead, more than $5 billion in U.S. exports and millions of jobs could be threatened.
It is uncertain whether Trump’s administration would continue U.S. involvement in a multilateral trans-Atlantic trade deal with European nations that the Obama White House has been pursuing. Protectionist sentiments among European voters have delayed progress on that agreement, which has not yet been completed.
David Adelman, a former U.S. ambassador to Singapore, a TPP-member nation, said that the United States’ long-standing support for multilateral free-trade accords could be tested under Trump.
“The conversation has shifted from the viability of the TPP to whether there will be a disruption of the existing rules governing trans-Pacific trade and investment,” said Adelman, now a business consultant at ReedSmith. He cited the success of several bilateral U.S. trade deals in Asia and predicted that a pro-trade coalition of business leaders, diplomats, academics and think tank officials “will work to protect the terms of those agreements.”
White House officials noted that Trump could chose to resurrect the TPP down the line. In 2011, the Obama administration resurrected three bilateral trade deals with Korea, Colombia and Panama that had been signed by President George W. Bush. The Obama administration negotiated side agreements with each country to win additional support in Congress, and lawmakers ratified all three that year.
“Trump’s trade policy is going to hit up against reality pretty fast,” said Philip Levy, who served as a trade adviser for GOP Sen. John McCain’s unsuccessful 2008 presidential bid. “There’s a disconnect between rhetoric and reality.”