A new trade deal has been signed in Santiago, Chile to counter the growing threat of trade protectionism by the US. The trade deal involves 11 countries including key US allies such as Japan and Australia. The deal challenges President Trump’s view of international trade as a zero-sum game that involves winners and losers.
The agreement comes barely days after the White House announced plans to impose steel and aluminum import tariffs. The deal is seen as the new version of the Trans-Pacific Partnership, a trade agreement that the US withdrew from a year ago.
Although there’s no doubt that this trade deal is weaker without the participation of the world’s largest economy, it’s a clear sign that other countries are ready to move on without US leadership. The new trade deal will cover over 500 million people on both sides of the Pacific.
Speaking during the signing, Chile’s President Michelle Bachelet said that there has been a worrying increase in global trade uncertainty due to policy actions of key players that undermine the principles that have contributed to mutual trade benefits among various countries.
The original Trans-Pacific Partnership on trade was designed to counter China’s growing economic influence in Asia. At the time, the vast and rapidly growing Chinese economy was becoming an attractive option to partners in the region. The US saw this as a strategic black spot and pushed for the TPP as a countermeasure. Former US President Barack Obama suggested that the TPP would provide an avenue for the US to re-establish and consolidate its influence in the region. However, his view is not shared by President Trump.
What makes the current situation more precarious is that the new pact has opened a window for China. Although China’s state-led economic model and steep trade policies still remain a concern, the agreement by the 11 countries has set out a few conditions for China’s participation. It will not be a surprise if Beijing takes advantage of this opportunity.
The protectionism policies by the White House have not gone unnoticed. The steel and aluminum tariffs have grabbed the attention of global leaders around the world. Although the initial proposal will exempt US allies such as Mexico and Canada from the tariffs, Trump’s antagonistic approach to global free trade has been met with a lot of criticism. Besides, other important US allies like Germany, Japan, Australia, and Turkey will have to make do with the new tariffs.
The new trade pact known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership will be viewed as a timely response to the new tariffs in the US. Analysts predict that once it comes to full effect it will generate about $147 billion in income. In addition to this, the pact is pushing for significant deregulation of trade among participating countries.
In the past, China has been very positive about the TPP. The Asian economic giant had sent a high-level delegation to discuss the aftermath of the US pull out a year ago. There is no doubt that China is following these recent developments very closely.