The Buzz

The Trans-Pacific Partnership: An Economic Hard-Power Weapon?

Consider the Trans-Pacific Partnership as an economic hard power weapon.

The TPP can’t deal out death like the US 7th Fleet. But a lot of the language used about the TPP is more geopolitics than geoeconomics.

The TPP is an attempt to shape Asia’s strategic environment, a hedging device and a major expression of the U.S. rebalance. The TPP is about boosting U.S. power and excluding China’s power. The TPP is zero sum—members are supposed to win and non-members miss the benefits. Plenty of hard power in all that.

As previously argued, the TPP is about who rules and who writes the rules.

That was the proposition Barack Obama put in his State of the Union address, and repeated in his interview with the Wall Street Journal:

“If we don’t write the rules, China will write the rules out in that region.”

As an expression of U.S. rule making, what will the TPP mean for Asian geopolitics if it comes into existence? Let’s make a few big assumptions. Assume the U.S. Congress does give approval to the TPP fast-track. Japan and America would then quickly resolve their bilateral arguments. Tokyo and Washington are “very close to a deal,” according to Yoshiji Nogami, former Vice-Minister of Foreign Affairs, and now president of the Japan Institute of International Affairs.

It’ll be a remarkable achievement if the U.S. and Japan can agree on a deep and broad free trade agreement. China is a potent force, indeed, if it can produce such a deal between the world’s first and third biggest economies.

The joke used to be that the last free trade deal in Asia would be between Japan and the U.S., because it would be the hardest to get. Steven Wong, of Malaysia’s Institute of Strategic and International Studies, says he’s had to abandon that jest. Now he says the last free trade deal in Asia will be between the U.S. and China.

With the TPP, the Asia-Pacific will have its first mega cross-regional free trade agreement. Obama will have delivered on his promise to be a Pacific president, whatever you think of the worth of the TPP.

Nogami told the Asia Pacific Roundtable in Kuala Lumpur that this new economic order will have significant geopolitical impacts:

“Beyond the scope of economic benefits, this has important implications for political and security circumstances in this region.”

The win-lose equation has some price tags. A study quoted by Nogami estimated the TPP would deliver gains of US$105 billon to Japan and US$77 billion to America by 2025; the loss for China is estimated to be $35 billion.

The direct Chinese pushback to the TPP would be the proposed Regional Comprehensive Economic Partnership, which includes everyone but the US.

Yoshiji Nogami says the TPP is much more ambitious and beneficial because it’s a higher quality deal than can be achieved with the RCEP:

"One problem with the RCEP is it is seen as some sort of alternative to the TPP, with lesser standards, lower standards. That’s not going to boost the RCEP. If you have a regime with lesser standards, if you have a regime which is not so ambitious, who is going to push a sub-standard agreement in the face of higher standards? The economic response is that countries which promote the TPP will have no major incentive for pushing a sub-standard product."

Steven Wong told the Roundtable that economic partnership agreements like the TPP are:

“The most important foreign policy instruments in the Asia-Pacific region. This may seem like a bold claim to make given the many traditional and non-traditional sources of tensions and potential flashpoints throughout the region. While there are some awesome attempts to address these concerns, nothing yet approaches the sheer expansiveness and depth of economic partnership agreements. They are the most visible and tangible manifestations at managing inter-state relations.”

Wong thinks economic partnership agreements carry potent symbolic value that may be “more important than their actual substance.” On this reading, see regional economic integration as ‘creating zones of influence.’ Wong says the Asia-Pacific will need to deal with “multiple partnership regimes.” The power balance is shifting and complicated—and competing trade deals reflect the contest.

Some economists see the TPP making more sense as a power play than as good economics. The Australian economist Ross Garnaut disputes the claim that the TPP sets the gold standard. Because it excludes China, India and Indonesia, he says, issues of preference and exclusion will loom large:

“The TPP will systematically discriminate against non-members through preferential arrangements. Members of TPP will put up barriers to trade with excluded countries that they won’t have with included countries. There will be limits on the proportions of value-added that can come from the excluded countries. And so we’ll end up with two sets of value chains in the region—one for members and one for non-members. One unintended consequence could be that to be an efficient producer of a lot of products, you will have to become part of the excluded countries, because you will not then be forced to exclude low-cost components from China, India and Indonesia.”

The TPP may be as much about spheres of influence as economic integration.  Obama is surely right that it’s a significant attempt at rule writing. On that, Beijing and Washington understand each other exactly.

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